Dollar Rebound Threatens Euro's Jackson Hole Breakout Level

  • Regional German CPI fails to support as longs are stopped out
  • Yen slips to near two-week low before U.S. growth, ADP prints

Krpata Says Sky Is the Limit for the Euro

The Bloomberg Dollar Spot Index extended its Asia session gain with investors continuing to unwind their short dollar exposure across the board as the gauge rebounded from its lowest level since January 2015.

The greenback’s relief rally saw the euro slide a second day, set for its first two-day decline in two weeks. Euro-dollar was 0.2 percent lower at $1.1953 as of 10:39 a.m. in London. The euro dropped as longs were stopped out and interest to fade the dip lies lower than current levels, according to Europe-based traders.

Investors turned their focus to the Jackson Hole breakout level at $1.1910, which also held on various attempts to break lower on Monday. A daily close below here might prompt further profit-taking from longs, as analysts suggest there’s a high chance that European Central Bank President Mario Draghi will try to put a lid on the currency at the ECB’s meeting on Sept. 7.

Euro demand extends all the way to $1.1880, said the traders, who asked not to be identified as they weren’t authorized to speak publicly. The volatility skew pointed toward further dollar losses as option traders stay unfazed by the latest spot move. Data from the Depository Trust & Clearing Corporation showed demand for euro calls remained strong, yet puts expiring in September gained traction.

  • Euro-area economic confidence rose to the highest level in a decade while regional inflation data out of Germany suggest there is a chance that euro-area CPI print on Thursday beats estimate
  • BBDXY was 0.1% higher, following a 0.2% increase on Tuesday; the dollar advanced against all G-10 peers but the Aussie
    • USD/JPY rose to its strongest level since Aug. 17 at the back of higher Treasury yields and an easing of Korean tensions
    • USD/CHF was steady at 0.9558; it hit a two-year low Tuesday
    • Data out of the U.S. include ADP employment report and GDP print
  • The pound swung between gains and losses as direction was driven mainly by the dollar’s moves across the board; model accounts were also in play near the day highs as cable met with strong technical resistance
    • The pair steadied above 1.2900 handle, day range 1.2896-1.2938
    • U.K. Prime Minister Theresa May said during a visit to Japan that no Brexit deal is preferred to a bad deal
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