Dollar Erases Weekly Gain as Treasury Yield Drop Extends Stumble

  • Little hope for strong gains until fiscal policy revealed
  • Technical resistance and order interest spur profit-taking

The dollar relinquished all of its gains for the week, following Treasury yields lower as the greenback extended Wednesday retreats from key levels.

The Bloomberg dollar index was down 0.3 percent on the day, though declines stretched to a full 1 percent from the Wednesday peak that was the highest this month, adding an air of drama to the move. Dollar-yen dropped to near 113.00 after rising to within four pips of 115.00 in the prior session, a reflection of sensitivity to fluctuations in Treasury yields.

  • Traders cited profit-taking and position unwinding as key drivers of the dollar drop. The greenback stalled near key levels against both the euro and the yen Wednesday amid wagers that the currency will fail to break recent ranges until clearer details emerge on President Trump’s fiscal stimulus plans, with some pointing to the State of the Union address at the end of the month
  • The dollar fell despite robust economic data, including Philadelphia Fed business outlook at highest since 1984, and further comments from Federal Reserve officials that signaled another rate hike is in the cards soon; market pricing around 38% odds for a March rate hike, up from around 30% at start of the week
  • Traders also cited danger of FX commentary from President Trump as one of several reasons to be cautious on expecting extended USD gains, though that risk may be diminished with Secretary Mnuchin now at the the helm of the Treasury Department
  • USD/JPY fell to a fresh low near 113.00 after a layer of bids near 113.50 gave way, exposing stop-loss sell orders; Wednesday, the USD stalled near 115.00 where option-related offers and the 55-DMA capped
  • EUR/USD rose to a fresh high 1.0679, stalling ahead of 1.0685 where a large option expiry is set to roll off Friday, bringing associated supply; EUR based Wednesday near 1.0500 where a layer of bids and technical support cushioned the drop
  • EUR may find interim support near 1.0600 where another large expiry is set to expire Friday
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