Dollar Shrugs Off Drop in Treasury Yields, Pares Weekly Decline

  • Break with Treasury yields may offer some solace to bulls
  • Yen gains on haven demand; Ichimoku levels may cloud outlook

Why Yellen's March 1 Speech Could Send Dollar Higher

The dollar weathered a roller-coaster session to trade slightly higher overall amid muted flows fueled by risk aversion as traders signaled little commitment to carry positions into the weekend.

The greenback gyrated as global stocks fell, with U.S. markets seeing smaller declines, and as the 10-year Treasury yield dropped toward a new 2017 low and the yen gained on haven demand. The Bloomberg dollar index is on track for its first losing week in three, unable to shake off lingering concerns about the timing of U.S. fiscal stimulus that had been the basis of the dollar’s post-election rally, though the dollar’s resilience in the face of the drop in yields Friday may comfort bulls.

  • The dollar dropped Thursday after Treasury Secretary Mnuchin signaled 2017 impact from fiscal stimulus will be modest, deflating expectations that President Trump could announce significant proposals at next week’s appearance before a joint session of Congress; losses extended into the early part of Friday before reversing, though trading ranges remained relatively snug in major currency pairs
  • If uncertainty over the fiscal and monetary policy outlook in the U.S. were not enough, traders remain wary of the evolving situation in European politics; fresh alliances this week in the French presidential race have, for now, changed the dynamics of daily opinion polls
  • News of a judicial investigation into French presidential candidate Fillon added fresh weight to EUR late in the session
  • Amid the worries in Europe and the U.S., the Japanese yen has seen broad buying that traders tie to haven demand; the yen is up vs all of its G-10 peers, breaking or testing some key technical levels on the way
  • USD/JPY dropped to a fresh low 112.04, tackling technical support at the base of the cloud on Ichimoku charts after macro-driven hedge funds liquidated USD longs below 112.30, a trader in London said; USD is expected to find fresh buying interest below 111.60, which also offers technical support from early February lows
  • EUR/USD trading in the lower reaches of its range after setting fresh high at 1.0618, only to drop back to a new low 1.0558 as the USD fortunes reversed; EUR drop was cushioned by bids under 1.0570 with further demand in place ahead of 1.0500, according to traders in London
  • GBP/USD fell to fresh low at 1.2450 after gains were capped at 1.2570 early in the day; GBP/JPY fell to the lowest since Feb. 17, on track to test support at its Ichimoku cloud base at 139.38 and the 200-DMA at 139.06
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