Dollar Pares Gain as Japanese Yen Surges to High Since November

  • Yen up against all G-10; stop-loss USD sell orders tripped
  • Dollar-yen breach of 112.00 may open move toward 110.00

Yen Signals More Pain for Dollar Bulls

The Japanese yen rose versus all of its G-10 peers, driving dollar-yen to its lowest level since Nov. 29 as traders unwound stale yen short positions across several currency pairs, notably against the Canadian dollar and the Australian dollar.

The yen strengthened through 112.00 per dollar after an earlier approach to the level was met with a rebound in the greenback, the gyrations coming as the dollar rose against most other G-10 peers. FX traders are trying to adjust positioning while balancing a Fed that is intent on hiking rates two or three times this year with a new administration which has expressed some misgivings about dollar strength.

Gains in the Bloomberg dollar index were about halved from the best levels of the day as the 10-year Treasury yield fell back to a fresh low for the session. Trading flows were erratic and dollar-yen closely tracked U.S. Treasury yields as traders sought fresh cues.

The Bloomberg dollar index has dropped for six straight weeks after surging following the Trump election victory. At the same time, ultra-easy monetary policies in Japan and the euro zone show no signs of abating, leaving the dollar with a yield and policy advantage. ECB President Mario Draghi reiterated that a benign inflation outlook in the euro area warrants continued policy accommodation while in Japan, the BOJ continues to manage its yield curve to keep long-term rates near zero.

In today’s trading, early yen strength sent the dollar-yen to 111.99 even as the greenback rose against other peers, a trade that evolved briefly into broader dollar buying as the dollar-yen rebounded after stop-loss sell orders placed below 112.00 failed to trip, stranding those who had sold in anticipation of a further drop. The subsequent dollar retracement tripped those stop-loss sell orders in a move that quickly inked a fresh low at 111.63.

  • USD/JPY now trading ~111.70 after break of technical support at 112.06 from the early February lows and from the Nov. 30 low; a sustained breach below 112.00 may allow a test toward the 100-DMA near 110.00; Japan PM Abe will meet with President Trump in Washington on Friday
  • Further dollar bids are positioned ~111.60, a trader in London said; the early dollar rebound came after sizable bids cushioned the early drop, said a trader in New York who asked not to be identified because not authorized to speak publicly
  • EUR/USD trading at ~1.0750 vs 1.0706 fresh low set as ECB’s Draghi spoke at the European parliament
  • EUR drop was cushioned by a thicket of bids that extended from 1.0720 to 1.0700, traders in Europe and London said; further buying interest is layered to 1.0680 where stop-loss sell orders are set
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