US dollar extends gains to day highs ahead of London fix

There is no favorable fundamental backdrop for the US dollar today. Economic data has been lackluster and Treasury yields are relatively flat, up 1.5 to 2.9 basis points across the curve. The decline in equities provides some support, but it is in a tight range.

Still, EUR/USD is down nearly 100 pips from early European trade and Cable is also under heavy pressure. This sell-off precedes the London corrective and Citi has warned of strong positive USD flows through the end of the month.

Dollar buying has recently spread to commodity currencies and this is a factor to watch. Oil is still higher on the day but has given some gains as the mood deteriorates.

In terms of charts, EUR/USD attempted to break out of the recent upside range yesterday, but faded late. If it breaks 1.0500, then 1.0472 was the June 22 low. Watch for a reversal after the corrective or London close at 1600 GMT.

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