USD: Exploring the correction - Commerzbank

The Dollar Index (DXY ) had its best day since early May yesterday. Heavily weighted on the euro, the DXY rally was driven by the euro sell-off, although we did see the dollar rally against most other currencies too. Undertaking a post-mortem on yesterday's price action, it looks as though short-term speculators might have entered long EUR/USD at the wrong levels in early Asia, and a lack of follow-through buying in Europe triggered a broader unwind of euro longs through the day. At the time, EUR/USD was closely tracking the German DAX index, where presumably speculators had been long as well, waiting for the EU trade deal, ING's FX analyst Chris Turner notes.

DXY can jump towards 99.50 and 100.50

"Price action does suggest, however, that some of this year's conviction calls are becoming a little stale. Those conviction calls certainly involve long EUR/USD for many accounts, along with selective positions in Latam and EMEA high-yielding FX. We have been arguing for some time that EUR/USD could come under pressure this quarter, and arguably, EUR/USD is now in a more fragile position than we had been expecting ahead of a big week for event risk."

"Ahead of tomorrow's FOMC meeting, which could also prove dollar positive, today sees the release of US JOLTS job opening data and also July consumer confidence. The former is expected to show some stability (at around the 7500k mark) and the latter is expected to pick up in line with the strong stock market. Let's see how the dollar performs around this data. Let's also keep our eyes on the energy market, where President Trump's shortening of a deadline for Russia to agree a ceasefire marginally increases the risk of secondary sanctions on the foreign buyers of Russian crude - the likes of China, India and Turkey. Any spike in crude on the threat of Russian oil being taken off the global market is probably a dollar positive."

"We think the dollar remains at risk of a corrective bounce this week - largely based on positioning. DXY pushing above the 98.80/95 area could open up a fast move to 99.50 and outside risk to 100.50. Certainly, we would recommend caution against trying to re-enter short dollar positions just yet."