Euro Nearly Erases Post-ECB Drop While USD Tumbles: Inside G-10

(Bloomberg) -- The dollar fell the most in two months, while the euro briefly traded above 1.18 for the first time since Oct. 26, as an early rally by the shared currency gained pace amid a further flattening of the Treasury yield curve.

• The Bloomberg Dollar Spot Index declined 0.4 percent. The euro advanced against each of its major counterparts and EUR/USD all but erased its drop since the European Central Bank meeting late last month. The gain against the dollar was the fifth straight, the pair’s best run since September
• EUR/USD advanced more than 1% and saw its biggest gain since Sept. 7. The pair was trading around 1.1791 vs a session high of 1.1805. EUR/USD briefly vaulted resistance at its 55-DMA of 1.1797 and may find further resistance at its Oct. 26 ECB day high of 1.1837.

• The U.S. yield curve flattened as stocks dropped and U.S. PPI data beat estimates; FX flows were driven by model accounts and saw stop-loss driven demand, as EUR shorts were forced to pare back positions. A shift in tone toward a stronger EUR was reflected in the option space, where demand emerged for upside strikes, according to traders in Europe
  • The euro rally was sparked in the European session by stronger-than-expected German 3Q GDP that showed Europe’s largest economy is on track for its best year since 2011
• The dollar declined vs most of its G-10 peers. It advanced against CAD and NZD amid lower oil and commodities, while gains versus NOK and SEK came after they were hampered by soft GDP and CPI data, respectively. Congress continued to iron out details of U.S. tax reform proposals. Wednesday brings U.S. CPI
• A gathering of central bankers at the ECB ensured ample headlines, but delivered little in the way of fresh insight into monetary policy. Fed Chair Yellen joined ECB President Draghi, Bank of England Governor Carney and Bank of Japan head Kuroda in assuring markets that forward guidance is now firmly embedded as a policy tool, even as it remains subject to conditionality
• USD/JPY was trading ~113.40 vs a low of 113.31, relinquishing gains from the London session that were tied to demand for EUR/JPY. USD rose as high as 113.91 in European trading while EUR/JPY extended gains to 133.83, the highest since Oct. 26 and fourth straight advance
  • USD/JPY may find technical support at recent lows near 113.00, while resistance and offers are likely near 114.00 where large option strikes expire Wednesday
• GBP/USD was trading ~1.3160 vs a session high of 1.3187. The pound spent most of the session rebounding from losses sustained after a slightly weaker-than-expected U.K. inflation print. Tech resistance may be at the 55-DMA at 1.3225 as GBP continues sideways trading that has been contained inside 1.3040/1.3230 since Nov. 3
• The pound is still beset by uncertainty as Brexit negotiators eye a looming December deadline to demonstrate progress in talks aimed at agreeing to some divorce terms; PM May’s govt won approval in a series of House of Commons votes of a measure tied to Brexit

To contact the reporters on this story: Alexandria Arnold in Seattle at abaca3@bloomberg.net, Dennis Pettit in New York at dpettit5@bloomberg.net.

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Greg Chang

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