The dollar managed to unwind some of its losses yesterday as strong factory orders helped to drive a recovery. However, over the past weeks the corrective outlook for the dollar has been building and it will be interesting to see if this is anything more than a rally within the corrective pressure. The trade weighted dollar index completed a top below 100.65 and the move has merely unwound back to that neckline which is now an area of resistance. The yields on US Treasuries have been consolidating and are now longer advancing for now as the market is clearly pondering just how far the dollar has come in such a short space of time. The euro gave back some of the ground that it made following the Italian referendum, however it is beginning to consolidate today as traders look towards the uncertainty of the ECB monetary policy meeting on Thursday. This is a meeting where we expect the ECB to extend the easing program by at least 6 months, but could also begin to signal a potential tapering of these asset purchases too, and so volatility is likely to be elevated.
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