BLBG; Dollar Drops Into Red for 2017 as Stale Longs Bail
Intervention exacerbates dollar drop before December jobs data
Strong dollar advocate a candidate for key post in Trump admin
The dollar fell the most since the U.S. election, dropping the greenback to levels not seen since mid-December as at least two central banks took steps to rein in a dollar which rose to a 14-year high earlier this week; foreign exchange flows were brisk as traders dumped stale long positions amid a cascade of stop-loss selling and as markets searched for equilibrium levels at the start of the year.
The dollar was -1.1% on the day after dropping as much as 1.4% as measured by the DXY dollar index. The dollar was down against all of G-10 peers and most emerging market currencies, the greenback’s appeal further undercut by the Treasury 10-year yield, which fell more than 10 basis points before steadying. Still, for 2017 the dollar is down just 0.7% from its Dec. 30 close, with traders and analysts not yet rushing to change their 2017 outlooks based on less than a week’s worth of trading.
Intervention by Mexico’s central bank to curb peso losses after the currency fell to a record added to dollar woes that began overnight when China took steps to underpin the yuan, fueling spillover gains into other Asian and emerging market currencies
The drop reflected long USD positioning, a trade that’s been popular since the election, traders and analysts said; “this is a squeeze in positioning rather than a reversal. Most of the metrics we track show the USD grossly overvalued to short-term drivers,” said Mark McCormick, head of FX strategy North America at TD Bank.
“Nothing fundamentally really has changed,” said Shaun Osborne, global FX strategist at Scotiabank; Osborne noted that David Malpass, a former economic adviser for the Reagan and George H.W. Bush administrations, is the leading candidate to be Trump’s pick for Treasury under secretary for international affairs; Malpass has been “generally a ‘strong dollar’ advocate in the past,” Osborne said
USD/JPY fell to a low at 115.22 amid stop-loss driven selling on the break of the 115.58 low from overnight, price action was choppy as weak longs threw in the towel, a trader in New York said: USD may find bids under 115.00, a trader in London said
EUR/USD rose as high as 1.0615, its highest since Dec. 30; further gains may be slowed by offers above 1.0635, the trader in London said; earlier, EUR briefly traded under 1.0500 as USD pared its drop
Market focus now shifts to the December U.S. jobs report due Friday; est. for NFP to rise 175k vs 178k prior reading; Thursday, data showed weekly jobless claims fell to 235k, the lowest since mid-November, while the ADP employment report showed private payrolls rose 153k in December vs est. 175k
