Dollar Up Versus Most G-10; Risk Tone Improves as Rhetoric Eases

Updated on
  • Euro near session low as Jackson Hole bumps option vols higher
  • USD/JPY rebounds to near 109.80 as Dudley favors 3rd hike

State Street's Lacaille Says Market Fear Can Return

The dollar began the week on a positive note, gaining versus most of its G-10 peers, as the risk tone in markets improved following a weekend of calming rhetoric between the U.S. and North Korea. 

The greenback erased its decline seen Friday, when U.S. inflation data missed estimates. Trading flows were modest as official and unofficial holidays in Asia made for reduced participation. Haven currencies relinquished some of their gains posted last week, while global equities climbed after an American defense official said over the weekend that the U.S. preferred a diplomatic solution to the differences with North Korea. The dollar rose to a new session high in afternoon trading after New York Federal Reserve President William Dudley said he favored a third rate hike this year if the economy evolves as expected.

  • With the Kansas City Fed’s Jackson Hole symposium now less than two weeks away, options volatilities in EUR/USD rose, while vols elsewhere declined, underscoring the focus on ECB President Draghi, one of the keynote speakers at the event
  • Investors continue to hope that Draghi will offer some guidance on the form and timing of any ECB plans to trim its asset purchase programs, a measure he has said could be discussed in the autumn. At the same time, markets will be sensitive to any remarks on the rise of the euro since late June, a development that could hamper the ECB’s ability to achieve inflation close to 2%
  • EUR/USD fell to a low for the day at 1.1770 and returned to near that level after Dudley spoke. Earlier, stop-loss sell orders were tripped below 1.1800, according to traders in Europe familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. Price action suggested additional stops may have been tripped under 1.1785. EUR may find technical support at the Friday low 1.1749, with a breach exposing the prior day low at 1.1704
  • USD/JPY was trading at ~109.70 after rising as high as 109.80 during the European session. The pair tracked swings in the 10-year U.S. Treasury yield, returning to near the session high after Dudley spoke. Overnight, Japan reported that its GDP rose for a sixth consecutive quarter to the strongest pace within G-7
  • Monday marked the start of the Obon week in Japan, an unofficial holiday period that sees many firms close or operate with reduced staffing. USD/JPY offers are positioned at 109.80/85, some related to options, according to a trader in Asia. Technical resistance may be found at 109.90 from the conversion line on Ichimoku chart
  • GBP/USD fell to a low for the day at 1.2957 as the USD built gains across the board; the pound may be in for a turbulent period ahead as politics and economics collide, ING analysts said
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