EUR/USD inter-markets: dollar sets the tone

EUR/USD is extending its bearish note today, dropping for a second consecutive session so far in response to a renewed bid tone around the dollar.

USD found extra legs after comments by FOMC’s Dudley, Williams and Lockhart have not ruled out a Fed’s rate hike at the September meeting. Adding to the ongoing optimism around the buck, FOMC’s VP S.Fischer said on Sunday that the economy is closer to full employment and on its way to clinch its inflation target at 2%.

In the meantime, volatility tracked by VIX remains in marginal levels, while yields in the US money markets have retreated from daily highs albeit they keep the positive territory.

Adding to USD buoyancy, and supporting the recent Fedspeak, Fed Funds futures prices remain on the upper bound of the range. According to CME Group’s FedWatch tool, the probability of a September’s rate hike is at 12%, while the probability of higher rates in December is almost 40%.

Nothing expected data wise in the US docket today, while Yellen’s speech at Jackson Hole and advanced Q2 GDP figures on Friday will be the salient points this week.

Further data from the latest CFTC report showed speculative net EUR shorts have dropped to the lowest level since July 12 on the week ended on August 16.

Key levels in spot remain around 1.1330 (base of the 8-month rising channel) followed by the 1.1340/60 band, where is located the 61.8% retracement of the May-June down move and last week’s highs. On the downside, the 2014-2016 support line sits at 1.1237 followed by the 1.1180 area, another retracement of the May-June drop and July highs (July 5/14).