One-way traffic sees the dollar outperform the rest of the major bloc
The top performers on the day are the dollar, yen, and swissie. No, it isn't due to risk-off sentiment. It's just the dollar advancing against everything else in particular. In terms of pips, the two biggest losers on the day are actually the euro and the pound.
The pound has been dragged lower earlier in Asian trading and continues to bleed in European trading after reports that Trump may scrape any trade deal with the UK should Theresa May not follow through with a hard Brexit. That has continued to weigh on sentiment, but key technical breaches are also part of the reason.
GBP/USD first broke away from the 1.3171 support, before going past the 1.3150 area and now moves towards a test of the 1.3100 handle and the 21 June low @ 1.3102. The first test seems to be a hold for buyers as price now rebounds to 1.3120, but the momentum still sides with the sellers.
Apart from that, the only reason why I see a lack of movement in the yen is the fact that Treasury yields are more or less flat on the day with equities tepid and a little mixed in European trading - started off with gains but tailed off after.
As for the euro, it's been dragged lower by the fact that the pound is also moving lower. And the aussie and kiwi are also badly hurt with EM currencies and the Chinese yuan also suffering heavily against the dollar. The offshore yuan is down 0.5% against the greenback currently.
The dollar's upside may very well have further room to run, with the dollar index now sitting between the resistance "air pocket" of 95.15 and 95.53. The latter being the "upper band" in which the upside may falter.
With all the hectic moves seen here, further troubles brew back at home in the US as the 2s-10s spread continues to narrow further to now only 25 bps:
At this rate, we may even see a flat yield curve before Q4 2018. And that will be something that could possibly derail the dollar's rally should it cause a rethink in the Fed's tightening cycle.
