Dollar Falls, Heading for Worst Weekly Drop Since July

  • Elliott Wave shows dollar may be entering ABC correction mode
  • Loonie reaches session high as WTI crude oil continues rally

The dollar reversed Thursday’s gains and headed for its biggest weekly loss in almost 10 months amid thin volumes as resource-sensitive currencies gained after oil advanced.

Fast-money accounts that had faded early dollar weakness Thursday were seen unwinding their positions as they looked to square short-term exposure, according to traders across Europe and the U.S. Leveraged investors were seen adding euro longs across the board, boosting the common currency. 

Volumes in the spot market for the majors were the lowest in a week, said the traders, who asked not to be identified as they weren’t authorized to speak publicly. Implied volatility in the front end was under pressure, especially in yen crosses, as traders looked to head into the weekend with decreased exposure.

  • Technically, Elliott Wave analysis shows the Bloomberg Dollar Spot Index’s drop this week satisfies a Wave 5 completion of the move initiated at the beginning of the year and that it may be entering into ABC correction mode. Wave C could, in theory, test the April high, which is ~2.5% higher than current levels. The index is down on the week by ~1.62%, biggest decline since a drop of 1.69% in the week ended July 29
  • EUR/USD built upon gains to reach 1.1212, the highest since the post-election high of 1.1300 on Nov. 9, which now marks the next target for the pair
    • Germany is said to push for Bundesbank President Weidmann to replace ECB head Draghi when his term expires, Der Spiegel reported
  • USD/CAD trading near recent session low of 1.3514, the lowest in more than 3 weeks, amid gains in WTI crude oil, which is rising on hopes of an OPEC accord next week. Stop-loss sell orders in place below 1.3550 with additional stops below 1.3535, traders said; next major support at 1.3482 50-DMA
  • The yen was lower vs all G-10 peers apart from USD as global stocks rose, with USD/JPY dropping ~0.1% to 111.40; still, traders say they see leveraged interest to chase the yen higher as the market has become sensitive to headlines and risk sentiment is vulnerable

— With assistance by Love Liman

(Corrects date in bullet 2.)
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