Yen Gains as Equities Slide After Trump’s Immigration Ban Order

  • Dollar erases drop as investors unwind short positions
  • Euro pares advance amid possible major technical development

Westpac's Callow: See Dollar-Yen at 118 by June

The yen gained versus all of its Group-of-10 peers as a week dominated by a plethora of central bank meetings started off with risk on the back foot after Donald Trump’s order to halt some immigration weighed on global equities.

The Bloomberg Dollar Spot Index erased its Asia-session drop and filled the gap from Friday’s close as macro accounts were seen scaling back on their short positions; real- money selling pressure in dollar-yen met demand from intraday accounts, traders in London and Europe said.

The Federal Reserve begins its two-day monetary policy meeting Tuesday. With the odds of a rate hike seen around 14 percent, focus is on whether officials will hint at whether market pricing of one-in-three chances for a March hike is appropriate.

Investors also concentrated on the outlook for the euro amid inflationary pressures in Germany and increased political risks throughout the currency bloc. Risk reversals have traded sideways this month, suggesting steady downside risks for the euro, while debate grows on whether the current pricing reflects anxiety on upcoming elections in the Netherlands, France and Germany amid a stalled Greek bailout review.

Technically, the euro is on the verge of breaching support of its rising wedge pattern since Dec. 30, which would make a visit of the 1.0560-1.0600 support zone within reach.

  • EUR/USD -0.04% at 1.0695, reverses gains; Jan. 26-27 double bottom at 1.0658 may halt further dollar gains at first attempt
  • Yen strengthens, with USD/JPY dropping 0.4% to 114.68; price action strangled by 21-DMA at 115.07 and 55-DMA at 114.73
  • Cable reversed advance to test bids and technical support below 1.2520, traders said. Emphasis placed on whether strong support circa 1.2430 will hold on a potential move lower
  • EUR/NOK firmly retains its bearish tone as latest Norwegian data show downside risks to growth are easing; pair lower by 0.2% at 8.9041 eyes test of Friday’s 18-month low at 8.8925
  • Implied volatilities in the front end remain supported as BOJ, Fed and BOE meetings loom, yet they fail to convincingly rally above past-year averages as policy makers are seen staying pat for the time being
  • Some information comes from FX traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly
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