The greenback is the laggard in trading today and is being pushed lower in European morning trade. USD/JPY is the standout as it nudges under the 140.00 mark but it’s not the only pair on the move. GBP/USD is up 0.5% to near 1.3200 and AUD/USD also up 0.5% to 0.6740 currently. Meanwhile, EUR/USD is also seen up 0.5% to 1.1128 as it threatens to break a couple of key Fib levels:
EUR/USD daily chart
The 50.0 and 61.8 Fib retracement levels at 1.1101 and 1.1125 respectively are looking to give way today. And that could set the pair up for stronger gains if the Fed plays ball later this week.
But that’s the caveat though, is that whatever moves we’re seeing with the dollar here is going to need vindication from the Fed.
Traders are pricing in a more dovish Fed as they look for ~59% odds of a 50 bps rate cut. That just means they are either hoping for that to happen or the Fed to turn to rather dovish even if delivering a 25 bps rate cut. It might be an understatement to say that the scope for the Fed disappointing market players this week may be quite large. But it is what it is at the moment.
In the bond market, 2-year Treasury yields are continuing to flirt with the 2023 low near 3.55%. And that’s another key threshold to watch out for before we get to the FOMC meeting on Wednesday. A break lower there will likely help to pin the dollar down further in the meantime.