Dollar holds steadier ahead of European trading

The RBA was the key highlight to start the day and they delivered a more hawkish rate cut, more or less what was expected. The central bank made clear that this doesn’t mean there will be another in April but they are willing to move again so long as there is evidence of further disinflation. For now though, it is a case of cutting today and then waiting to see on the future.

At the balance, AUD/USD is flat at 0.6355 but off its earlier low of 0.6335 on the day. Instead, AUD/NZD is the one seeing stronger flows with a bounce from 1.1100 to 1.1140 in the aftermath of the RBA. That erases the drop from Friday and yesterday for the pair.

Overall, the aussie is holding its own against the dollar with the latter seen a touch higher across the board. It’s a steadier mood for the dollar as it nurses the losses from last week. EUR/USD is down 0.3% to 1.0453 and GBP/USD down 0.3% to 1.2595 currently.

After a break yesterday, 10-year yields in the US are higher by nearly 4 bps to 4.515% currently. That’s helping to prop up USD/JPY as well, with the pair up 0.4% to just above 152.00 now.

All that being said, the dollar is still in a softer spot following the declines last week. It’s a case of dollar longs unwinding further as Trump policy fears are not as scary as thought previously. Outside of being long in tech stocks, the dollar trade has been the most crowded in recent times though it looks to be easing this month:

Is there more room to run now that traders are getting a hang on how to deal with Trump’s theatrics?

As much as the greenback is holding its own so far today, I want to say it might be a whole different story when we get to US trading later. It wouldn’t be the first time things reverse, not least when the near-term charts are still running against the dollar.

EUR/USD, GBP/USD, and AUD/USD are all still holding above the 100 and 200-hour moving averages while USD/JPY, USD/CAD, and USD/CHF are also keeping below their 100 and 200-hour moving averages respectively. All of that suggests the near-term bias is still siding with dollar sellers for now.

Coming up in European trading, we do have some economic data points to move things along. The UK labour market report is one to watch out for, before moving on to the final French inflation numbers for January and the German ZEW business survey findings.

This article was written by Justin Low at www.forexlive.com.