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DXY Sinks into Yearly Lows with EUR/USD at Fresh Highs

DXY Sinks into Yearly Lows with EUR/USD at Fresh Highs

Christopher Vecchio, CFA,

Talking Points:

- Euro still riding the wave higher after ECB President Draghi hints at a reduction in accommodative policy yesterday.

- US Dollar doesn't have much significant data to look to today as a way to stop the recent bleeding.

- The retail crowd is now over 75% net-short EUR/USD after the past two days of price action.

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The US Dollar's sudden disconnect from US Treasury yields is doing it no favors. After European Central Bank President Mario Draghi hinted yesterday that the central bank may favor a reduction to its asset purchase program at an upcoming meeting (September is my guess, given the release of new staff economic projections (SEPs)), sovereign bonds - particularly those considered safe havens like German Bunds or US Treasuries - saw a sharp selloff, resulting in higher yields.

Normally, higher US yields (particularly on the short-end of the yield curve) bode well from the US Dollar. But context is crucial, and in this case, the context is bad for the greenback. Because the rise in US yields is coming on the back of a global intraweek mini 'taper tantrum,' traders are focused on the source of the market volatility. In this case, because ECB President Draghi is the catalyst, it stands that the Euro is garnering the bulk of the benefit from the lurch higher in interest rates.

Meanwhile, another influence on the US Dollar may be rearing its ugly head again: the state of US fiscal reform. The US Dollar has been noticeably weaker as rumors (which became fact) swirled that the Senate would delay a procedural vote on its version of the healthcare bill. Healthcare reform is a necessary precursor to other fiscal reform, as through the budget reconcilliation process will tax reform be only achievable. Without the tax savings from healthcare reform, there can not be tax reform (and you could thus forget about infrastructure spending).

In terms of the economic calendar today, there is no source of reprieve on the horizon for the US Dollar. As DXY Index slumps into fresh yearly lows, there are several economically-important but not necessarily trading-important data release set for the session. EUR/USD run to its highest levels since pre-Brexit vote in June 2016 appears to be unimpeded for the time being.

See the above video for technical considerations in EUR/USD, GBP/USD, USD/JPY, EUR/GBP, Gold, USD/CAD, Crude Oil, and the DXY Index.

Read more: Euro Rallies on Draghi Commentary; Dollar Waits on Yellen

--- Written by Christopher Vecchio, Senior Currency Strategist

To contact Christopher Vecchio, e-mail

Follow him on Twitter at @CVecchioFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.