Dollar Dips, Then Pares Losses; FOMC Saw Risks From Strong USD

  • Dollar may counter upside risks from possible stimulus: FOMC
  • DXY sheds most of 2017 gain as market looks to December NFP

What's Driving the Dollar Lower?

The dollar fell to a session low before halving its losses after FOMC minutes showed some members concerned that downside risks from a strong dollar could counterbalance upside risks to economic growth from possible fiscal stimulus.

In dropping to the new low amid choppy price action, the greenback erased all of the gain from the prior session. The defensive footing was blamed on limited risk appetites and an inclination to clear the decks of stale positions ahead of Friday’s December U.S. jobs report. The dollar was on track to relinquish all of its gains from the start of the year as measured by the DXY dollar index.

  • FX flows were moderate, with trading driven mostly by short-term players willing to shift direction quickly as markets continue to seek equilibrium; USD sentiment may be shifting away from the broadly bullish tone seen at the end of 2016, though it’s still too soon for longer-term players such as real-money accounts to have fully refined their views for 2017, traders said
  • The dollar is -0.4% as measured by the DXY dollar index after briefly rising to its highest since December 2002 yesterday; the USD remains lower vs all of its G-10 peers with the steepest loss a 0.8% drop vs CAD, though AUD and GBP are tracking close behind
  • USD/CAD fell ~1% to a low of 1.3282 before rebounding above 1.3300; bids layered from 1.3280 to 1.3250 may have cushioned the drop, while USD also faces technical support from the 100-DMA at 1.3255
  • EUR/USD rose to a fresh high at 1.0500 before stalling near tech resistance from yesterday’s high at 1.0490; EUR may be encountering offers related to ~EU3.9b of 1.0500 expiries that roll off Thursday and Friday
  • USD/JPY fell to a fresh low at 117.06 in morning trading and has pared losses to ~117.70; USD drop was cushioned by bids under 117.30, a trader in Asia said, though price action was quite whippy on the break below there, while flows were only light, a trader in New York said
  • Pair may find support at 116.74 from the 21-DMA that coincides with the Jan. 2 low at 116.75
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