Dollar Gains Fizzle as 10-Year Treasury Yield Falls From Highs

  • Muted flows and sparse liquidity make for inconclusive trade
  • Market closings to further thin liquidity into January

The dollar continues to trade at levels not seen since 2002 when measured by the DXY index, though gains were pared in thin afternoon trading as a retreat in 10-year Treasury yields provided a reason to trim USD longs set early in the day.

FX flows remain muted and price action is relatively inconclusive as modest flow and lack of liquidity conspire to make for occasionally large, but orderly, price swings, traders said.

Trading activity was notably slower than on Monday and business is expected to drop off further as holidays and abbreviated trading sessions crimp liquidity; Japanese markets are closed Friday for the Emperor’s Birthday holiday and FX markets in Europe and London will wind down early that day, whether by official declaration or tradition.

FX futures markets in Chicago will close ~1pm ET on Friday, at which time FX liquidity will drop considerably.

Market holidays dot the calendar again in the week after Christmas and Japanese markets are also closed at the start of the New Year, further delaying the return of normal liquidity.

  • EUR/USD trading at about 1.0390 vs 1.0352 low, with EUR finding demand ahead of 1.0350, possibly leaving some intraday players short after stops below 1.0350 failed to trigger, a trader in London said
  • Further bids are in place below 1.0340, according to a trader in Asia
  • USD/JPY trading ~117.75 after rising as high as 118.24 following the BOJ’s decision to leave rates and policies on hold
  • USD approached the 118.43 level from last week, which was the strongest since early February, and remains within striking distance of the 2016 high at 121.69
  • BOJ’s Kuroda said the current level of USD/JPY reflects a strengthening of the USD rather than a weakening of JPY and that it’s too early to discuss raising the yield target
  • GBP/USD fell to a fresh one-month low at 1.2313 before paring losses; U.K. PM Theresa May said she will make a speech early next year detailing the government’s approach to Brexit negotiations
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