Dollar Pares Loss in Choppy Session; Data Whisper Traps Bears

  • Fast price swings, thin liquidity before long weekend
  • Retail sales miss offset by upward revision to prior month

The dollar swung between gains and losses to trade down ~0.2% as measured by the Bloomberg dollar index in a roller-coaster ride at the end of the week amid moderate trading flows and sparse liquidity that allowed for some sharp price swings as traders trimmed positions before a long weekend in the U.S.

The dollar, which remains lower against most of its G-10 peers, fell to a fresh low for the day ahead of data that showed December retail sales rose 0.6% m/m vs estimates for a gain of 0.7%. The shortfall was offset by an upward revision of a tenth of a percent to November’s data, putting the overall outcome above a “whisper” number for a considerably weaker report, thereby fueling an intraday short squeeze that was felt strongest in dollar-yen and in Treasury yields.

  • USD/JPY trading ~114.71; the pair rebounded quickly to 115.45 after the data, reversing a drop to 114.19 that may have left some USD shorts stranded, a trader in New York said; the rise in dollar-yen tracked a sharp uptick in the UST yield which left traders in both markets pointing to the other as the leader of the price action
  • USD gains were briefly underpinned as U.S. stocks rose to the high before shedding gains
  • EUR/USD rebounded to ~1.0639 after dropping to a fresh low at 1.0596 around mid-morning as traders tested the resolve of buyers shortly after large options at 1.0600 expired
  • Early in the day, EUR rose to a fresh high at 1.0673 before offers layered ahead of 1.0700 capped gains for a second day
  • GBP pared an early drop to trade near 1.2200 ahead of the U.K. close; GBP remains choppy on Brexit concerns ahead of a speech by U.K. PM May on Tuesday
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