Dollar Declines Despite Robust Housing Data; Market Eyes Yellen

  • Trading flows modest as positions are unwound ahead of weekend
  • Brexit anniversary sees GBP gain on stop loss-driven buying

BNP Paribas' Sneyd Says EUR/USD Is Overstretched

The dollar rounded out the week on a defensive footing as modest losses eroded the first weekly gain since the end of May, with the decline attributed to position squaring ahead of the weekend rather than any significant shift in sentiment.

Trading flows were mild and ranges tight as the dollar dropped about 0.25 percent. The greenback fell versus all of its G-10 peers except for a gain against the Canadian dollar. The loonie tumbled after May inflation data missed estimates, damping recent speculation that the Bank of Canada will raise rates when it meets in July.

  • St. Louis Fed President James Bullard said in a speech that it’s a distinct possibility the central bank could begin to trim its balance sheet in September; he expects only slight upward pressure on yields during the unwinding of the ~$4.5t portfolio. Meanwhile, Cleveland Fed President Loretta Mester said it’s time to gradually remove some policy accommodation. Focus now shifting to Chair Janet Yellen’s speech in London on Tuesday about global economic issues
  • The dollar lost ground Friday despite data that showed new homes sold at a 610k annual rate in May vs estimates for 590k pace. Prior month data were also revised higher, adding to the healthier tone overall even as it cut into the strength of the May gain. The dollar will face a slew of economic data next week, the final trading week of the first half
  • EUR/USD rose to a new high for the day at 1.1209 in the minutes after a large 1.1200 strike expired, removing some of the associated supply that had capped the pair earlier in the day. Price action was consistent with a few stop-loss buy orders being tripped above the interim high at 1.1188 that had been set in European trading. Despite the gain, EUR remains below its Monday peak at 1.1214 that offers nearby technical resistance, with additional resistance seen at the June 15 peak of 1.1229
  • GBP/USD rose on the one-year anniversary of the Brexit vote to trade at ~1.2727 vs its morning 1.2744 peak seen as stop-loss buy orders were tripped above 1.2740, a trader in London said. Earlier, stops were tripped above 1.2720, according to traders in Europe familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. U.K. Brexit negotiations are underway and remain testy as leaders address issues related to citizens’ rights. Despite Friday’s gain, GBP remains more than 15% below its year-ago level
  • The Canadian dollar fell sharply before paring losses, dropping as low as 1.3308 vs the USD. May CPI rose 0.1% m/m, half the expected pace, trimming the y/y gain to 1.3%. The inflation data provide an obstacle to speculation for a Bank of Canada rate hike later this year. The BOC recently acknowledged the stronger tone of economic data in recent weeks, but may not be willing to look past soft inflation reports. Helping the CAD pare its losses, WTI crude oil rose to a fresh high for the session at $43.20, gaining for a second day
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