Dollar Erases Gains Amid Skittish Trading, Moderate Flows

  • Greenback little changed after mid-morning snap higher
  • Price action seen as order-driven amid lack of clear catalysts

The dollar was little changed after relinquishing mid-morning gains, as order flows were modest amid an illiquid and skittish market. 

The greenback was mixed versus its G-10 peers after an early advance against most evaporated. The broader move dissipated as euro-dollar rebounded from a fresh two-week low to erase most of its loss for the day in afternoon trading. The dollar was still down against the yen, though above a nearly two-month low. The greenback also saw losses versus the Swiss franc as global tensions continued to simmer, albeit at a lower temperature than late Tuesday. There was no obvious catalyst to drive the dollar’s modest but sudden swings, traders from Europe, London and Toronto said.

  • Price action was skittish throughout the day, with global tensions rising after President Trump warned North Korea it risks “fire and fury” following threats against the U.S. The choppy price action continued even after Secretary of State Tillerson and some U.S. allies tried to play down the risk that tensions could escalate further; Defense Secretary Mattis emphasized the U.S. continues to pursue a diplomatic solution even as he warned N. Korea to “stand down” from its nuclear ambitions
  • Investors tried to disentangle flows that were driven by profit-taking and position unwinding, amid liquidation of long positions in the euro and short positions in both the Swiss franc and Japanese yen. Both of those are typically sought as havens in times of stress. The Swiss franc rose the most against the euro in about 14 months
  • In Wednesday trading, USD/JPY snapped back from a fresh low at 109.56, its lowest since mid-June, to trade near 110.00 after bids ahead of 109.50 cushioned an initial decline. Stop-loss sell orders are in place below 109.50 with further bids and stops clustered around 109.00, said traders in Europe and the U.S. familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. Offers are positioned above 110.40
  • EUR/USD was trading ~1.1750 after rebounding from a fresh low at 1.1689, its lowest since July 28, as bids and stop-loss sell orders were filled around 1.1700. Traders continue to mention profit-taking in EUR longs as the main driver of trading after the shared currency rose steadily since the July 20 ECB meeting
  • The Swiss franc surged vs all of its G-10 peers, even gaining vs the JPY, as it outperformed amid haven flows and position unwinding following about two weeks of steady losses
  • The New Zealand dollar was little changed at ~0.7329 ahead of the RBNZ policy decision. The central bank is expected to remain on hold, keeping rates at 1.75%, though traders will be on the lookout for any remarks on FX
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