Dollar Reverses Drop, Shrugging Off Weaker U.S. GDP and Durables

  • Peso gains 1%, damps broader dollar tone as sterling, yen drop
  • Risk appetites muted as positions tweaked before FOMC meeting

Is the Dip in the Dollar a Buying Opportunity?

The dollar reversed a morning drop to post a slight gain as traders tweaked positions ahead of the weekend and before Fed policy makers begin a two-day meeting next week.

FX flows were “few and far in between,” a trader in London said, giving rise to some some moderate price swings as traders tried to keep risk profiles low. Dollar gains were paced by advances against the British pound and the Japanese yen, which both fell ~0.5%. The dollar was otherwise narrowly mixed against G-10 peers as most pairs kept within very tight ranges.

As was the case at the start of the day, the dollar closely tracked swings in the Treasury 10-year yield, which was off its low, though staying below 2.50% after rising to a near one-month high 2.5526% yesterday.

The dollar earlier dropped to a low for the session as Treasury yields and stocks declined after weaker-than-expected U.S. economic data, including the first reading of fourth quarter economic growth.

While dollar sentiment has shifted from bearish to a more neutral or positive bent, today’s data failed to provide fresh impetus to keep momentum alive ahead of the weekend, said traders who asked not to be identified because they are not authorized to speak publicly.

  • GBP/USD fell back to near its session low just ahead of the London close, a drop that appeared to represent just some position squaring, a trader in that center said; just ahead of the session, the pound dropped to a low at 1.2517 as traders probed for stop-loss sell orders, only to rebound quickly as bids cushioned the drop and the stop-loss orders failed to materialize, the trader said
  • Stops are now said to be in place below 1.2480, just below technical support from the 100-DMA at 1.2499
  • EUR/USD has dropped back below 1.0700 after rising to a fresh high at 1.0725 after the data, absorbing a layer of offers above 1.0700 before stalling; further offers are in place ~1.0740/50, traders in Europe said; EUR may find stop-loss sell orders below 1.0660, just below technical support from Thursday’s low at 1.0658
  • USD/JPY has regained a foothold over 115.00, reversing shallow dips to below 115.00 as yields stabilized; the dollar stalled at 115.38 earlier as offers were absorbed ~115.30/35 and may find technical resistance ~115.60 from the high on Jan. 19 and from the Ichimoku cloud top
  • USD/MXN remains down almost 1% as the peso gains despite rising tensions between the U.S. and Mexico; USD losses vs MXN are a drag on the broader Bloomberg dollar index which has eked out a gain of just 0.1% on the day and was headed for its fifth straight weekly loss
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