FOREX-Dollar tries to keep rally alive in a short market

* Dollar holds gains as payrolls force short-covering
* Trend still lower for now as virus rages in U.S.
* U.S. fiscal stalemate, China tensions in view

By Wayne Cole
SYDNEY, Aug 10 (Reuters) - The U.S. dollar was trying to
keep a rare rally together on Monday as its longest losing
streak in a decade left much of the market structurally short of
the currency and vulnerable to a squeeze on any upbeat news.
Bears were caught out by a better payrolls report on Friday,
which pushed Treasury yields higher into this week's massive
$112 billion debt sale. Yet the dollar still ended lower for the
seventh week in a row.
"Our portfolio has been positioned for a number of weeks now
for a narrowly weaker USD as a consequence of the independent
surge in COVID-19 infections in the U.S. that has opened up a
decent gap in near-term economic performance, especially against
Europe," said analysts at JPMorgan in a note.
"Our positions have been concentrated in the EUR-bloc,
reflecting also the structural improvement in the European
policy framework following the agreement over the recovery
fund."
The euro held at $1.773 EUR= on Monday, having hit a
two-year high of $1.1915 last week, which now acts as major
resistance. Support comes in around $1.1755 and $1.1694.
Turnover was light with Tokyo on a holiday and considerable
uncertainty on whether U.S. policymakers can agree a new package
of fiscal support for the virus-hit economy.
House Speaker Nancy Pelosi and Treasury Secretary Steven
Mnuchin on Sunday said they were open to restarting COVID-19 aid
talks, after President Donald Trump took executive actions on
unemployment benefits. Against a basket of currencies, the dollar was a fraction
firmer at 93.434 =USD and just above a two-year trough.
The dollar was a little steadier on the yen at 105.89
JPY= , well above the recent low of 104.17 but facing stiff
resistance at 106.46.
Investors were wary of a fresh flare up in Sino-U.S.
tensions with trade talks scheduled for August 15 even as
Washington imposed sanctions on senior Hong Kong and Chinese
officials. Any breakdown in talks would tend to benefit the dollar, and
the safe-haven Swiss franc, at the expense of the Japanese yen
and commodity currencies such as the Australian dollar.
On the data front, the U.S. has consumer prices on Wednesday
and retail sales on Friday, which is expected to show a solid
bounce in spending albeit before the latest round of social
restrictions took some steam out of the economy.
A raft of Chinese figures is due this week, which is
forecast to show a continued recovery, while EU production data
is also expected to please.