Foreign exchange greenback weakens; Bearish elements rise

© Reuters.

From Peter Nurse – The dollar weakened in early European trading on Monday, hurt by falling yields, weak economic data and few signs of a new bailout to support the US economy.

At 3:20 a.m. CET (0720 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, fell 0.3% to 92.537. fell 0.5% to 105.47, rose 0.5% to 1.3163 and rose 0.2% to 1.1896.

The US economic data disappointed on Monday. The index fell to 3.7 in August, well below the expected level of 15 and the level of 17.20 in July.

That release came ahead of Friday's purchasing managers' indices, which are viewed as forward-looking indicators, and suggests that the US economic recovery may be stalling.

Yields on the 10-year note fell up to 5% on Monday, making US dollar-denominated assets less attractive.

In the meantime, investors are still waiting for the two political parties to agree on a much-needed financial support package. With lawmakers now on hiatus and the conventions of both parties over the next two weeks, the chances of anything being signed at any time seem slim.

Even the traditional role of the dollar as a safe haven seems to attract little demand.

The Trump administration announced on Monday that it would further tighten restrictions on China's Huawei Technologies and restrict access to commercially available chips. This has had little impact, however, as the delay in the US-China trade deal review suggests that this vital trade relationship can exist amid conflict on several other fronts.

Additionally, the Federal Reserve's minutes are due Wednesday, and investors will examine them carefully to see if there has been any discussion of the central bank's assumption of an average inflation target. With inflation below target for so long, an average target would mean that loose monetary policy is expected to last longer than usual.

These dollar losses are also likely to increase if the position data is to be believed.

The CFTC data, which ended Aug. 11, contributed to signs that bearish sentiment against the US dollar is increasing, according to analysts at ING in a research note.

“The most obvious contribution resulted from a further increase in the EUR net positioning, which is now + 28% of the open interest and is thus below the 30% highs of April 2018. This was the seventh week in a row that the EUR positioning has risen. ING said, with the euro being the largest weight in USD-weighted positioning against the G10 currencies reported by the CFTC.

In addition, there is little evidence in the spot market that the USD short building process has stopped in the past few days and we may see USD net positioning drop even further next week, ”added ING.

Elsewhere, the price traded 0.1% lower at 73.5989 after climbing to the top of its most recent trading range as Russia continues to suffer from the coronavirus outbreak and a weak economy weighed down by US sanctions is.

However, Russia's reserves reached $ 600 billion for the first time last week. So there is little evidence that this ruble weakness will turn into full-blown currency flight, especially if oil prices stabilize.

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