Dollar rate today: Dollar Basket in the red but EUR/USD should remain capped

There is also the slight issue of a strengthening Euro which appears to be one of the main outperforms today.

The US dollar basket is trading 0.21 pct lower at 8127, largely weighed down by the headline EUR/USD rate. The pound to US dollar exchange rate is trading 0.18 pct lower at 1.5991.

The euro to US dollar exchange rate is trading 0.16 pct higher at 1.3393.

(Please Note: All quotes here are derived from the wholesale spot markets. Your bank will charge a spread at their own discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please find out more here.)

Euro dollar exchange rate rallies to remain capped

Despite the rather puzzling euro appreciation we are witnessing today analysts remain sure that the upside will be capped.

Stephen Gallo says positioning may be at play, however, he too remains uncertain as to the exact reason behind the euro's continued strength:

"In view of the general bid tone in the USD versus the GBP and the JPY this morning in London, the tendency of EURUSD to grind higher suggests that the bulk of the move was related to positioning, and the subsequent covering of EUR shorts following last week’s ECB rate cut.

"Still, the tendency of the EUR to grind higher so far today is rather curious, in light of last week’s events.  We’ll have more food for thought in this regard as the week progresses.
"In the run-up to Yellen later in the week, we suspect that there is some additional headroom in EURUSD, but also that rallies should remain capped well in advance of the 1.3500 mark."

Speculators start to back the USD again

The latest CFTC data shows that non-commercial aggregate USD positions turned net long in the week to 5 November, after being net short throughout October.

The recent stronger than expected US data (Q3 GDP, October employment report and ISM surveys) has helped USD gains since and USD long positions are likely to have extended further.

There had been concerns the government shutdown would have a downward impact on the data, however the data seen so far has failed to disappoint.

"While we still think the Fed will be reluctant to taper as early as December with the upcoming budget talks early next year, a continuation of better than expected US data could bring forward market expectations of QE ‘tapering’ which would further support the USD," say Lloyds Bank Research.

Data from the major US futures & options exchanges (CFTC) are released each Friday evening and report positions up to the close of business on the previous Tuesday.

Traders are classified as either commercial or non-commercial. The positioning of the non-commercial traders can be used as a proxy for the speculative side of the market.