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(Bloomberg) -- The dollar was on a defensive footing and mixed versus its G-10 peers as a round of profit-taking ahead of month-end outweighed recent enthusiasm for the greenback.
Trading flows were muted overall as investors waited out portfolio rebalancing that was expected to result in modest dollar selling. That patience was also tied to this week’s heavy slate of event risks, with three G-10 central bank meetings and a possible decision on Federal Reserve succession. A slew of economic data from the U.S. and elsewhere culminates in the monthly U.S. employment report due Friday.
- The BOJ, the BOE and the Fed all meet this week. Only the BOE is expected to shift policy, with markets pricing in an almost 90% chance of a 25bps hike. Investors will parse remarks from BOE’s Carney to determine the outlook for rates beyond this meeting, especially whether the expected hike is the first in a series or a “one and done” dovish hike, traders in London said. The Fed is likely to reiterate that a rate hike may be appropriate in the near future. President Trump is set to announce his pick Thursday for the next Fed chair before he departs for Asia at the end of the week
- The Bloomberg dollar index is down ~0.2% on the day. Among G-10 peers, the dollar’s steepest losses are against the pound and the yen and strongest gains versus the Canadian dollar and the still-defensive kiwi
- USD/JPY dropped to a fresh daily low in U.S. hours of 113.20, in line with yields as Treasuries rallied, tracking a similar move in bund futures after German CPI inflation came in below estimates. The dollar rose briefly at the start of Asian trading amid Gotobi-day demand, only to drop back amid apparent month-end rebalancing flow, said Neil Jones, head of FX sales at Mizuho Bank. Seasonal flows typically favor USD/JPY into year-end, Jones said, and those flows may resume once the new month gets underway on Wednesday USD/JPY trading at ~113.26; the pair is still a preferred “buy on dips” outside of month-end considerations, other traders say. The pair tested tech support from recent lows ~113.25; stop-loss sell orders may be seen on an extended drop under there. Offers are in place at 114.00 and extend toward Friday’s high at 114.45
- EUR/USD trading at ~1.1623 after dropping back from session high at 1.1642; EUR declined after the German CPI data, relinquishing modest gains from overnight, which were seen as USD was weighed by profit-taking ahead of month-end, traders said. Trailing stop-loss buy orders were tripped as EUR rose in European trading, with residual orders of the same type layered to 1.1660, traders said. Bids to buy EUR are likely to be found ahead of 1.1550, where option barrier strikes are noted. Reflecting the shift in EUR sentiment following last week’s ECB decision to extend QE, 1-mo. risk-reversals briefly traded at their lowest level in 2 months, near par, as the recent hawkish bias evaporates
- The New Zealand dollar returned to a defensive footing after a brief respite late last week, declining toward the 2017 low at 0.6818 seen in May and retested Friday. New Zealand’s finance minister suggested that revising the RBNZ mandate could lead to lower interest rates if an employment target were included
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