Dollar Rangebound as Summer Market Awaits Jackson Hole Speeches

  • Draghi to speak as liquidity dwindles, risking wide moves
  • Loonie rises even as oil drops amid approach of hurricane

BlackRock's Harrison Says Draghi Is in the ‘Hot Seat’

The dollar held onto slight gains established overnight as central bankers began gathering in Jackson Hole Thursday, with most major currency pairs little changed from the European trading session.

The greenback was mixed versus its G-10 peers in late trading, with overall gains amounting to 0.1 percent. The sedate price action suggested that positions have been tweaked to ride out any potential storms from Friday talks at the Jackson Hole meeting by Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi. In the background, soft U.S. housing data and noise surrounding a possible government shutdown continued to keep investors edgy. An Axios report that suggested the odds of a shutdown were rising did little to encourage fresh position taking.

  • EUR/USD was trading near 1.1805, close to the midpoint of a 34-pip range that has contained the pair since the start of Thursday trading; EUR gained a slight lift in the U.S. session amid an advance by EUR/JPY as some light stop-loss driven demand emerged. EUR stalled near the Wednesday high at 1.1823 as traders refrained from pressing the pair higher, even after an ECB board member appeared to suggest little concern over recent currency strength
  • If Draghi shows the same lack of concern, EUR/USD could easily climb a cent or more on Friday afternoon amid very sparse end-of-week liquidity that will prevail around his 3pm ET appearance, traders say. Conversely, the shared currency could fall by that amount or more if the usually cautious central banker offers some pushback to its recent outperformance. Bigger swings could also be held until the start of the following week, one of the traders said
    • The risk to the dollar from Yellen’s speech is to the upside if she comes out as more hawkish than expected, said the trader, which could be a problem for some given short positioning in the USD
  • For Thursday, stop-loss buy orders positioned above 1.1825 may break the prevailing calm, if triggered, though offers are said to be positioned above 1.1840 should EUR gains extend
  • USD/JPY was trading ~109.43, near the session high of 109.46 that was earlier also retested before the pair retreated with Treasury yields. Offers to sell USD are positioned around 109.50 and helped cap the pair, even as stop-loss buy orders above there offered the potential for additional gains if tripped. Overnight, the pair rose from lows under 109.00 amid demand from domestic Japanese retail and investor accounts, a trader in Asia said
    • Credit Agricole recommends buying USD/JPY at 109.30 into Jackson Hole with a target of 112.50 over the next two to three weeks, given that much of the U.S. political “dysfunction” has already been priced into the dollar
  • USD/CAD traded near session low of 1.2520; the loonie strengthened even as the price of crude oil sank on expectations demand will drop with Hurricane Harvey approaching Texas
  • U.S. July sales of previously owned homes unexpectedly fell to a 5.44 million annual pace, the slowest in 11 months, vs expectations for a small increase to 5.55 million; Treasuries extended a rally that began ahead of the data, shaving the yield on the 10-year to ~2.1750%, almost the lowest of the day, though it rebounded soon after
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