Dollar Hits Six-Week High Versus Yen as Risk Sentiment Improves

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Written by
Vassilis Karamanis
Written by

Vassilis Karamanis

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(Bloomberg) -- The dollar rose to its highest level versus the yen since March as a rebound in global stocks and a drop in U.S. Treasuries lowered haven demand that typically boosts the Japanese currency.

The yen faced selling pressure across the board as President Donald Trump's comments that he would meet with North Korea's Kim Jong Un under the right circumstances spurred investors to buy risk assets. The dollar-yen pair rose by as much as 0.4 percent to touch 112.31, the highest since March 21, as of 11:15 a.m. in London. The yen could face additional pressure from momentum sellers as it's on the verge of closing below a key technical support versus the euro.

The common currency moved above iconic resistance near 122.20 yen from a daily trendline extending since mid-December. A daily close above would open room for test of March 13 high at 122.89 and beyond. Renewed demand for low-delta euro-yen puts ahead of the final French presidential vote could limit the upside for now. Tokyo markets will be closed for public holidays from Wednesday to Friday, and that could weigh heavily on liquidity.

The dollar is on course to close above its 55-daily moving average versus the Japanese currency for the first time since mid-March. The gauge, currently at 111.86, capped greenback strength Monday but may give in as seasonality factors emerge. The Bloomberg Dollar Spot Index has now entered its best month of the year in terms of performance seasonality. Since Bloomberg started compiling the data, the index has gained in May in 10 out of 12 years.

The market may prove to be shorter on gamma than it would prefer on a break above 112.50, traders in Europe said. Yen weakness could halt as Japanese exporter and option-related offers stand below 113.00, while take profit offers also accumulate near 113.20, said the traders who asked not to be identified as they weren't authorized to speak publicly.

BBDXY moved slightly negative throughout the London session as the dollar traded lower versus the majority of its G-10 peers
EUR/USD stood above 1.09 handle as chances of another test at 1.0951, the resistance by April 26 high, haven't faded; dip-fading interest seen at 1.0875-80 and 1.0850: traders
- Main risk event until the French elections is the FOMC meeting that begins Tuesday; traders will look for a reiteration of the Fed's intent to hike two times before year-end while any dovish tilt in Yellen communique may provide the necessary boost for the pair to claim 1.10 resistance
- The common currency was supported by Nowotny comments that the ECB has to discuss its strategy for the start of the following year at the June meeting while it largely shrugged off PMI prints across the bloc
- One-week implied volatilities in euro crosses show market participants assign few chances of a Marine Le Pen victory on Sunday; skew shows tail-risk hedging remains relatively expensive, though significantly lower when compared to the days before the first round of the French elections
The pound rose sharply on knee-jerk reaction following release of U.K. manufacturing data, which unexpectedly showed the fastest growth in three years
- GBP/USD rose to its day high at 1.2921
- One-month risk reversals extended their recent run higher as spot price action suggests upside may be more vulnerable than the downside; 1.30 calls were traded Tuesday for GBP200m with July 3 expiry: DTCC
- The Australian dollar rose above 21-DMA resistance at 0.7531 as RBA statement sounded more hawkish than investors feared; AUD/USD pared gains of as much as 0.4% to trade at 0.7530 versus 0.7556 high
- Significant expiries rollover Tuesday at New York cut-off at 1.0950 (EU734m) in EUR/USD, 111.80 ($1.09b) in USD/JPY and 9.6500 (EU763m) in EUR/SEK: DTCC