Fresh Squeezed Dollar Juice

The inability of the US dollar to continue higher on Monday shows cracks in the core of the US dollar rally. The euro led the way in a broad USD decline that squeezed out all the post-NFP gains. Up next it's Chinese CPI. Ashraf issued a new Premium trade in GBP a few hours ago. Friday's Premium long in EURUSD at 1.1110 is now yielding +170 pips and remains in progress.

Dollar bulls piled back in Friday after a strong non-farm  payrolls report but the most-important trend at the moment is the slump in Bunds. That has spilled over to the DAX and euro, as Ashraf highlighted earlier. The way the euro reasserted itself so quickly on Monday highlights the dominance of the bund market at the moment.

The ECB's Noyer was asked about rising yields on Monday and although he didn't raise any alarm bells, he offered an explanation. He said that asset managers wrongly believed there may be a shortage of QE assets at the outset of the program and rushed into buying them. Those fears haven't borne out and now it's a rush to the exits. He also talked about the other reason for euro strength – economic performance. He said growth this year has been at the top end of what was expected. Questions and speculation about the ECB extending QE beyond Sept 2016 are dormant for the moment.

The main euro risk is Greece but despite frequent bouts of thunder and lighting, officials appear to be inching towards a compromise. More broadly, it appears the US dollar may need more than good economic news to reignite the rally. Given the painful moves on Monday, more dollar buyers could soon head for the sidelines.

But first, the focus shifts to China with CPI numbers at 0130 GMT. The market expects just 1.3% y/y inflation with a flat m/m reading. China took small steps to stimulate some housing markets yesterday and a low print could mean a boost for the boarder economy.

Also, keep a close eye on the Australian dollar as traders there return from a holiday and lower-tier indicators on job ads, housing finance and business confidence are released.