Dollar rebounds on short covering after upbeat US data and recovery in US stocks: May 19, 2017

Market Review - 18/05/2017  23:19GMT  

Dollar rebounds on short covering after upbeat US data and recovery in US stocks

The greenback finally cut its recent losing streak and recovered from multi-month lows vs some G7 peers as release of robust U.S. data and recovery in the Dow triggered broad-based short covering in the greenback, however, uncertainty surrounding U.S. politics should limit further strong recovery in the dollar.  
  
Versus the Japanese yen, despite recovering to 111.42 at European open, price tumbled to a fresh 3-week low of 110.24 in European morning on cross-buying of yen. However, the greenback quickly pared its intra-day losses and staged a recovery to 111.33 in New York morning after the release of better-than-expected U.S. jobless claims data and upbeat Philly Fed's business index came in at double economists' expectations. Dollar later rallied to session highs of 111.73 as U.S. stocks reversed initial losses and rebounded.  
  
U.S. jobless benefits fell to a 28-year low. The number of individuals filing for initial jobless benefits in the week ending May 13 decreased by 4,000 to a seasonally adjusted 232,000 from the previous week's total of 236,000, the U.S. Department of Labor said. Analysts expected jobless claims to rise by 4,000 to 240,000 last week.   
  
Although the single currency briefly rose to a fresh 6-month peak at 1.1172 in Asia, price pared its gains and dropped to 1.1107 in European morning, then to 1.1105 at New York open on cross-selling of euro especially vs sterling before stabilising, price later hit session lows of 1.1076 on broad-based usd's rebound before recovering in late trade.  
  
The British pound traded sideways in Asia and briefly edged down to session low at 1.2937 at European open. Later, cable jumped after the release of robust UK retail sales data and hit a fresh 7-1/2 month peak at 1.3048 in European morning, however, price 'reversed' intra-day gains and retreated to 1.2993 in New York morning. Later, another round of broad-based long liquidation is sterling sent the pound tumbling to session lows of 1.2888 before staging a recovery near New York close.  
  
U.K. Office for National Statistics said that retail sales rose 2.3% in April from the prior month, compared to the previous 1.4% decline which was revised from a previous drop of 1.8%. That was its largest gain since January 2016. Analysts had expected April's reading to increase by just 1.0%.   
  
Year-on-year, retail sales increased 4.0% last month, compared to forecasts for growth of 2.1%. March's reading was upwardly revised to 2.0% from the initial 1.7% advance.  
  
In other news, ECB's Vasiliauskas said 'ECB shud discuss balance of risk assessment, easing bias at Jun policy meeting; no part of fwd guidance immovable but does not see rate hike b4 QE ends; ECB shud move step by step, first step is balance of risk assessment; ECB shud not continue QE beyond this year if data confirm positive developments; any tapering of asset buys shud be gradual; ECB needs to remain predictable.'  
  
Data to be released on Friday:  
  
France unemployment, Germany PPI, EU current account, consumer sentiment, UK CPI trends and Canada retail sales.