Dollar Drops for 2nd Day in Quiet Trading Ahead of Jackson Hole

  • Modest flows across major currencies as Korean exercises begin
  • Draghi may eclipse Yellen as focus at Jackson Hole symposium

What the Jackson Hole Summit Might Signal About QE Unwind

The dollar fell amid muted trading flows, declining to its lowest since a bullish U.S. jobs report on Aug. 4, as traders await fresh trading cues from a gathering of central bankers later this week.

With only a limited supply of economic data due at the start of the week, traders were attempting to keep their powder dry ahead of the Kansas City Fed’s annual symposium in Jackson Hole that features talks from both European Central Bank President Mario Draghi and Federal Reserve Chair Janet Yellen. The euro rose to a session high in afternoon trading, while the 10-year Treasury yield saw a modest decline and U.S. stocks fluctuated. Military exercises near the Korean peninsula kept concerns simmering over North Korea, while extended positioning was seen as a risk to euro longs, traders said.

  • The dollar fell for a second day and was lower vs all of its G-10 peers, with losses amounting to ~0.25% overall. Trading flows were exceptionally muted in the session and below the pace of any day last week, according to traders in Europe, the U.K. and the U.S.
  • EUR/USD rose to a session high of 1.1828 as stop-loss buy orders were filled around 1.1790. Further offers in the zone from 1.1800 to 1.1820 slowed EUR gains as they were filled. Tech resistance may be at the Aug. 14 high of 1.1838 or the Aug. 11 high at 1.1847. Large 1.1850 expiry for Tuesday likely to assure that supply will be seen around those levels
    • The move higher was likely driven by positioning adjustments ahead of Draghi’s comments at Jackson Hole on Friday, said Erik Nelson, a currency strategist at Wells Fargo
    • To the downside, bids are stacked below 1.1675 and may provide an initial cushion for any EUR decline. Record long asset manager EUR positioning was cited by traders as a risk to the common currency’s gains
  • Fed Chair Janet Yellen will discuss financial stability at the Jackson Hole event Friday at 10 am. She may be somewhat eclipsed by ECB President Draghi, who will speak five hours later at the same forum. While trader expectations are low for fresh insight into ECB’s planning for adjustments to QE, there’s an expectation that Draghi will acknowledge the improved tone of the euro area economy. Traders will parse his remarks for comments on the impact of currency gains after the euro rose as much as 6.5%, as measured by the Bloomberg euro index, since his speech in Portugal in late June
  • USD/JPY fell to a fresh low for the day at 108.64, extending losses below the 108.90 interim low as USTs gained further in the session. The 10-year Treasury fell below 2.1750% before recovering to above 2.1800%
  • Trading flows were limited in USD/JPY, though a few light stop-loss sell orders may have been tripped under 108.80, according to a New York-based trader familiar with the transactions who asked not to be identified as not authorized to speak publicly. Traders will eye tech support at Friday’s 4-month low at 108.60; breach may allow decline toward or through the 2017 low at 108.13
  • CFTC positioning in JPY shows leveraged funds remain short yen, though at a less extended level than in EUR, presenting some risk of further washout, a London trader said. At the same time, concerns around the Korean situation and the broader USD malaise that stems from the turmoil surrounding the White House and President Trump’s fiscal agenda are likely to make for headwinds against meaningful USD gains, the trader said
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