Dollar Recovers From Further Selling As Turnaround Tuesday Unfolds

After the retreating in the North American session yesterday, despite a rebound in retail sales after three-months of declines, the greenback has been sold further in Europe and Asia. The euro edged through last week’s high near $1.24, and sterling rose through the January high to reach its best level since the mid-2016 referendum.

Sterling rose through $1.4375 before the easing after the employment report. Initial support is seen in the $1.4300-$1.4320 area. The claimant count rose 11.6k in March, and the February series was revised to 15.1k from 9.2k. The claimant count is rising. It averaged a little less than 3k in 2017 and less than 1k a month in 2016. The average in Q1 is 7.6k and minus 5k in Q1 17. 

Average weekly earnings growth rose to a 2.8% pace (three-months through February year-over-year) up from 2.6%. The ILO measure of unemployment fell to a new cyclical low of 4.2%.  The data are unlikely to alter expectations that the UK economy (Q1 GDP will be reported April 27) slowed slightly from the 0.4% pace seen in Q4 17, and that the BOE will hike rates next month. Many, though not a majority, expect another hike in Q4 18, but it is just less than half priced into the OIS curve.  The UK reports March CPI tomorrow.

German economic data continues to surprise on the downside as economists have not yet caught up to the slowing that has occurred here in Q1. Today’s disappointment was the ZEW survey. Both the current assessments and expectations components fell more than expected. Of note, the latter fell into negative territory for the first time since July 2016 and is the lowest since late 2012.

The euro was already encountering offers in the European morning before the survey. The euro eased further after the report. Support is seen in the $1.2340-$1.2360 area.

The dollar rose to nearly JPY107.80 before the weekend but has been unable to build on the momentum this week. It fell to JPY107 yesterday and a little further today. Bids were seen repeatedly near JPY106.65 last week. There is a large option expiry today ($1.2 bln) at JPY107.20, and that may cap the upside.