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US Dollar Back In Favour, Retraces Thursday Sell-Off

FOREX
  • After consolidating just above Thursday’s lows for much of the European session on Friday, the dollar index began a grinding retracement higher throughout the US session, rising a little over half a percent.
  • The DXY retraced the entirety of the prior day’s sell-off and remains closely pinned to pre-FOMC levels around 96.60.
  • Waning risk sentiment prompted a flight to quality, weighing on the Euro, Aussie, Kiwi and CAD which all fell between 0.65%-0.85%.
  • EURUSD once again failed to test key resistance at 1.1383, Nov 30 high. German IFO survey suggesting GDP growth has stalled, which also weighed on the single currency. The trigger for a resumption of the downtrend is 1.1186/85, a break would open 1.1128, a Fibonacci projection.
  • USDJPY, despite being unchanged, had a volatile session. Initial dollar and a softer tone for risk prompted more bailing of longs and fresh recent lows at 113.14. The sell-off was cut short as strong broad dollar demand supported the pair back to around unchanged at 113.70. Sub 112.53 levels would reverse the overall bullish trend conditions.
  • In emerging markets, another turbulent day for the struggling Turkish Lira. At its worst point, USDTRY was up around 9.5% on the day to fresh all-time highs of 17.1452. CBRT intervention managed to halt the pair’s ascent, however TRY is still 5% lower on the session, with likely headwinds still lingering.
  • With all major central bank meetings out of the way, next week’s event risk declines dramatically in the lead up to the holiday period. RBA minutes will be published Tuesday before markets see US Core PCE Price Index on Thursday December 23.
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