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Europe looks set for a calmer start to the new week, with risk trades continuing to breathe easier following Fed chair Powell’s speech at the end of last week.
Powell offered no fresh leads on tapering and that sent the dollar lower while Treasury yields declined as well. That said, the drop remains contained but month-end trading this week may make it a bit trickier to navigate before Friday’s non-farm payrolls.
Two key levels to watch this week will be EUR/USD at around 1.1800-05, where a break could extend towards 1.1900 next, and USD/JPY near its 100-day moving average at 109.64 and trendline support around 109.52.
Those two pairs are likely to dictate the state of play in the dollar from a technical perspective so keep an eye on that in the sessions ahead.
From a fundamental standpoint, I don’t expect the greenback to show material weakness (at least not a prolonged one) as the taper timeline is still intact.
The Fed is likely to acknowledge/confirm start of taper discussions in September, announce tapering in November, and begin tapering in December/early next year.
As long as US data is still healthy, that should keep the above sentiment in play and support the greenback amid the lack of initiatives shown by other central banks.
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