The dollar bounced back for most of last week, but its recovery already looks to be stalling before it ever really got going. The fundamentals don't appear to have played as great a role as market positioning did. Speculative EUR & GBP longs, in particular, were disappointed as rate hikes (BOE) and signals of impending rate hikes (ECB) were seen as a cue to take profit and sell. The FOMC statement was essentially unchanged and this reflects the ongoing policy holding-pattern of the US Fed. The fact that yields have backed up since the statement is more indicative of speculators covering bets on a near-term US rate cut than on any prospect of higher US rates. On the whole, we continue to hammer out a very choppy consolidation range in the major dollar pairs, and this looks set to continue. However, while the US dollar index remains above 82.00 (EUR/USD roughly below 1.3570) the bias is for further dollar-positive correction potential.   Full text »

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Filed under: Weekly Strategy