Greenback And Dollar Bloc Lose Ground To Europe And Yen

Dollar selling pressure emerged at the end of last week, partly in response to disappointing US economic data. This selling pressure carried over into yesterday’s activity. It appeared to have been trying to stabilize yesterday in the North American session. News that President Trump may have shared intelligence with Russia’s foreign minister and US ambassador not only heightened ongoing concerns about the Administration’s ties with Russia but also is seen by some as jeopardizing the aggressive legislative agenda. 

The mishandling of security issues was a Trump campaign criticism of Clinton. Although there was some attempt, of course, to play down the significance of what was shared with the Russians, the damage control exercise by aides may be almost as revealing as an acknowledgment. Also, that the story apparently was leaked by US intelligence officers suggests a key source of tension in the community.  

Asia seemed slow to respond to the developments, but in the afternoon, it began to sell the dollar. The euro is the chief beneficiary. It was bid to $1.1050, the highest level since the US election. Note too that as of a week ago, speculators in the futures market are net long euros for the first time in three years. The next retracement target is near $1.1130, but the euro is unlikely to make it there today. The intraday technicals warn that the euro buying may have exhausted itself for the time being. A pullback to test the previous resistance that should act as support in the $1.10 area would not be surprising.   

The dollar was sold against the yen, but found support ahead of yesterday’s low (~JPY113.10) and recovered toward JPY113.70 in the European morning. US Treasuries are flat and Japanese shares advanced about 0.25%. The Nikkei continues to knock on the psychologically important 20k level. The MSCI Asia Pacific eked out a small gain that was sufficient to lift the benchmark to fresh two-year high. Of note, India’s equities set new record highs. Exporter and positioning ahead of more earnings reports were seen as the main drivers.