Dollar Lowest Since October as Yen Rallies Before Thursday Risks

Updated on
  • Greenback slumps ahead of U.K. vote, ECB meeting, Comey
  • China may be ready to buy more U.S. Treasuries: report

The dollar fell to its lowest since early October and the yen rose about 1 percent as investors awaited a slew of risk events later this week. U.S. Treasury yields fell after a report that China may be ready to buy more of the securities.

Trading flows were again modest with few events scheduled before Thursday, when U.K. elections, an ECB policy meeting and testimony from former FBI director James Comey will all get thrown into the calculus for currency rates. There’s also the first round of French parliamentary elections this weekend. For now, position paring seems to be the main driver as investors reduce pound longs while buying yen.

  • USD/JPY extended losses that began in the Asian session. The pair is expected to find bids in the zone below 109.15, though stop-loss sell orders are seen under 109.00, traders in London and New York said. Technical support may be at 108.88 from the pair’s April 21 low, though some traders have mentioned technical targets closer to 108.13, the pair’s 2017 low
    • USD/JPY retains a “stupidly strong” correlation to UST yields, Societe Generale’s Kit Juckes writes; the 10Y yield fell to a new YTD low after the report on China
  • GBP/USD fell to a new low for the day at 1.2872 as the U.K. political picture and developments after the weekend attack in London intertwine to cloud the outlook. A poll showing the Conservatives with just a 1% lead over Labour was initially shrugged off, though the GBP dropped only hours later amid very sparse conditions, with traders suggesting that investors may be suffering poll fatigue. U.K. voting takes place Thursday and updates can be tracked here
    • GBP expected to find bids ~1.2850, just below tech support from the Monday low at 1.2853
  • EUR/USD touched a fresh session high at 1.1284 as USD slid lower; EUR continues to struggle at recent highs near 1.1285 amid steady reports of offers ahead of 1.1300. Stops are in place above 1.1305 area with additional supply near 1.1325/30 that surrounds resistance from the Sept. 8 high at 1.1327
  • A decisive victory for Macron’s party in the first round of voting in the French election this weekend may give EUR a boost, though the shared currency first needs to get past Thursday’s ECB meeting. Investors continue to expect the central bank to keep rates and policies on hold, perhaps while acknowledging recent improvement in the economic outlook. ECB President Draghi is likely to reiterate that there’s no urgent need to change the bank’s asset purchase plan, which is slated to run until the end of 2017 and which Draghi has said could be extended or increased if needed amid still-transient inflation gains
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