Dollar is trading mixed for the week in reaction to global fears of Wuhan coronavirus pandemic. Yen and Swiss Franc are stronger naturally on risk aversion. But Euros’ strength is some what a surprise to the markets. Nevertheless, it can actually be explained by a sudden surge in market expectations of Fed rate cut, in preparing for global recession, including the US. Fed funds futures are currently pricing in 96.3% of a 25bps cut to 1.25-1.50% at March FOMC meeting. A month ago, that was less than 9% chance.
Dollar index’s pull back from 99.91 is deeper than expected, with 38.2% retracement of 96.35 to 99.91 at 98.55. That’s a natural result as the greenback is being sold off against both Euro and yen. While further fall is likely for the near term, strong support is now expected between 61.8% retracement at 97.71 and 55 day EMA at 98.26 to contain downside to bring rebound. That should happen at least for the first downside attempt in the area.