Dollar Near Session Highs With Modest Gains Before Holiday Break

Updated on
  • U.S. Treasury yields, stocks decline after U.S. drops bomb
  • Sparse liquidity exaggerates moves ahead of long weekend

The dollar traded near earlier session highs with modest gains, as the currency partially recovered losses sustained Wednesday after President Trump said it is too strong.

The Bloomberg Dollar Spot Index advanced about 0.1 percent on the day as the greenback gained versus most of its G-10 peers. Stocks and the 10-year U.S. Treasury yield traded near session lows after the U.S. reported it dropped a large non-nuclear bomb on an Islamic State target in Afghanistan

  • Trading flows are quite modest after European trading centers shut down for the long weekend. Volume may pick up next week as traders consider last-minute position adjustments ahead of the first round of the French presidential elections, which is tightly contested by the four leading candidates. The euro remains on a defensive footing with losses vs a majority of its G-10 peers while the Bloomberg euro index remains close to its six-week low set Wednesday.
  • At the same time, the dollar’s outlook has been clouded by Trump’s remarks that were echoed by BlackRock CEO Larry Fink, who attributed some of the slowness in the U.S. economy to the strength of the greenback. Traders also are wary about how much weight to put on Trump’s remarks, given that more informed views on the level of the currency are normally the purview of the Treasury Secretary.
  • With the 10Y UST trading below 2.30%, traders may recalibrate their expectations for the dollar. Recent sentiment has been to buy the USD on dips amid expectations that the currency will be supported by the rising trajectory of U.S. interest rates, in contrast with those of Europe and Japan.
  • Traders caution too that thin trading conditions around the Easter week can make for outsized moves that can be corrected once market participation returns to more normal levels.
  • USD/JPY is trading at ~109.12, paring earlier gains. The dollar drop tested technical support at the 200-DMA 108.75, where bids cushioned, said traders in Europe familiar with the transactions who asked not to be identified because they are not authorized to speak publicly; EUR/JPY trading near session low of 115.72, lowest since November.
  • EUR/USD is trading at ~1.0618 after retracing from session high at 1.0678 set in European trading. Support may be seen at 1.0589, where bids cushioned Wednesday’s drop.
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