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  • NFP had been rumoured to be weak, worrying dollar bulls.
  • EUR/USD falls after NFP led dollar rally, breaks below 1.18, DXY holds above 93.
  • Dollar most oversold in forty years according to Morgan Stanley note.

Zero rate environment so macro, political focus wins

Dollar Index (DXY) has found some favour in recent days having suffered a difficult start to the week with EUR/USD marching through 1.19 and DXY looking like it would consolidate below 93.00. EUR/USD has however failed to hold above 1.19 on several occasions and the rally has run out of steam.  Similarly, DXY has struggled to hold below 93.00. 

With all economies pursuing near zero or negative rates who wins? The surging US stock market should give the dollar the advantage on a macro basis. Ignoring rates, US assets have been the stellar performer among global stock markets. 

However, on the dollar negative side we have Trump doing all he can to fight with China, bolstering his core support, US stimulus talks still deadlocked and the coronavirus second wave looking inevitable as the US hardly managed the first wave.  The dollar initially benefited from haven status early in the coronavirus outbreak but the swiss franc has taken that role lately.

Dollar most oversold in 40 years according to Morgan Stanley

Morgan Stanley cautioned on betting against the dollar in a note issued Friday.  It says the dollar is at the most oversold it has seen in forty years and has closed all short dollar positions.  This may also have added to the dollar’s rally early in the US session.  It though is not backing any alternative currency, preferring instead to stay dollar neutral.

Technical view

Technically the 93.99 high from Aug 03rd remains key to break having failed twice.  Above this, the low from March 09th of 94.63 is next.

On the downside, Thursday’s yearly low of 92.49 followed by 91.01 low from Sept 2017.