Dollar Surges Against Yen, Reverses Drop Seen After Soft Data

  • Durables and Chicago Fed index highlight uneven U.S. data flow
  • Quarter-end rebalancing may see further USD selling this week

U.S. Stocks Start the Week Mixed as the Dollar Waffles

The dollar was trading close to a session high after reversing losses sustained following a round of disappointing U.S. data, though the greenback was still on track to drop more than 6.5 percent from its early January peak as the first half of the trading year winds down.

Trading flows were modest Monday as the dollar gained versus most of its G-10 peers and the Bloomberg dollar index advanced about 0.1 percent. The greenback gapped to a one-month high against the yen in afternoon trading to above 111.90 as stop-loss orders were tripped. The dollar earlier dropped as much as 0.2 percent, declining with Treasury yields after May durable goods orders fell more than estimated and the May Chicago Fed national activity index had an unexpected drop.

  • The dollar is down ~6.6% from its peak at the start of January, when the Trump reflation trade was running at full steam. Since then, as expectations for large and immediate fiscal stimulus have dwindled, so too has the greenback. The move has been exacerbated by the shifting fortunes of other G-10 peers, as political clouds have dissipated and economic fortunes have improved, offering attractive alternatives to dollar investments
  • This week, the dollar may see additional slight selling tied to month-end rebalancing as real-money players tweak portfolios back to benchmark. USD selling is expected to be modest, according to early estimates
  • USD/JPY reached its highest since May 25 at 111.95, buoyed by the afternoon surge from its earlier level around 111.75. Additional offers and stops are expected to be in the 112.00 area. The pair also faces resistance at 112.13, the May 24 high
  • The dollar’s earlier drop early Monday coincided with a decline in the 10-year Treasury yield to session low ~2.12% after trading near 2.16% earlier in the day. San Francisco Fed President Williams overnight echoed remarks from other colleagues in making the case for further, gradual rate hikes. Markets will focus on a Tuesday appearance by Fed Chair Yellen in London, while on Wednesday four central bankers -- ECB’s Draghi, BOC’s Poloz, BOE’s Carney and BOJ’s Kuroda -- are likely to stick closely to the theme that now is not the time to raise rates
  • EUR/USD fell to ~1.1179 vs a session low of 1.1172. The shared currency earlier stalled at 1.1220 before easing back. Offers to sell EUR are positioned above 1.1245, traders said, while technical resistance may be at the June 15 high 1.1229
  • The Canadian dollar also pared its gains to trade at ~1.3250 after the USD fell as low as 1.3212 early in the day; WTI crude oil fell to a fresh low for the session, relinquishing slight gains from the start of the day, then rebounded back into the green
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