Dollar Steady on Month-End Flows; Pound Drops, Volatilities Rise

  • Swiss franc mixed, Brexit day high versus euro in spotlight
  • Month-end flows lean toward dollar-selling, traders say

Is the Dip in the Dollar a Buying Opportunity?

The dollar reversed early losses to keep its consolidation theme of the past week intact, with month-end flows capping the upside on the currency.

Sterling drops for a fourth day to test support above 1.2400. Stops on long positions versus the dollar and the euro were triggered earlier Tuesday amid a lack of news.

Data earlier in the day showed that U.K. consumers increased their borrowing at the slowest pace since May 2015. The Bank of England meets Thursday, and although analysts expect the policy mix to be unchanged, markets’ reaction to any guidance will shed light on investor positioning on the pound.

  • GBP/USD drops as much as 0.6% to 1.2413, trades at 1.2430; stops filled below 1.2470, while EUR/GBP stops filled above 0.8600; more stops seen below 1.2400 handle, three traders in London and Europe say.
  • Bloomberg Dollar Spot Index is unchanged at 1242.86, swinging between gains and losses; downside risks remain as 21-DMA bearishly crosses 55-DMA, while Bloomberg’s Fear-Greed indicator shows bears still in control of price action that edges near DeMark support at 1236.57; month-end flows skewed toward dollar-selling: traders.
  • EUR/USD reversed losses to test offers above 1.0720; support at 21-DMA held Monday and may form lower band of any range heading into Fed’s policy announcement Wednesday.
  • USD/JPY initially dropped to 113.24 after BOJ confirmed expectations that it would stand pat this time round; the yen gained as markets reacted to deepening conflict over U.S. immigrant order, met steady selling interest as London session got under way.
  • Haven flows also support the Swiss franc, which hit an 18-month high Monday on a trade-weighted basis; even as EUR/CHF pares part of its weekly losses, focus remains on the Brexit-day low at 1.06237 with a daily close below opening room for a test of the floor of SNB’s unofficial corridor at 1.0500; pair now +0.1% at 1.0655.
  • As a result, one-week implied volatility in EUR/CHF rises to highest since at Jan. 19 at 4.51%, remains subdued compared to past-year average at 5.23%; leveraged investors have been supporting euro vols this week, with strangles and spreads in demand, according to one of the traders.
  • Not much action in the loonie ahead of BOC meeting; USD/CAD -0.1% at 1.3110, large expiries within 1.3100-05 in $587m.
  • Some information comes from FX traders familiar with the transactions who asked not to be identified because they aren’t authorized to speak publicly.
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