Dollar rallies as retail sales gain fuels Fed taper speculation

Options Trade

Dollar-yen options trading was 12% less than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Euro-dolar options trading was 10% below average.

The greenback failed to breach a key resistance area versus the yen from 103.38 to 130.40 on Dec. 10, sending the dollar back down as far as 102.16 yesterday, according to Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co. A break above the 130.40 level still may send the dollar up to 103.74 yen, he said. Resistance refers to an area on a chart where sell orders may be clustered.

U.S. retail sales in the U.S. climbed 0.7% in November, the most since June, after a 0.6% advance in October that was larger than previously reported, Commerce Department figures showed in Washington. The median forecast of 83 economists surveyed by Bloomberg called for a 0.6% advance.

Dollar Supportive

“The retail sales are clearly helping the dollar,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “The dollar could bounce back against some of the currencies that have been doing particularly well, like the euro and sterling, going into the FOMC, as markets cut back on risk.”

Industrial output in the European currency bloc fell 1.1% in October, compared with a 0.2% decline the prior month, according to Eurostat, the European Union’s statistics agency in Luxembourg. The median prediction of 35 economists in a Bloomberg survey was for a 0.3% gain.

The European Central Bank kept its main refinancing rate unchanged at 0.25% at its Dec. 5 meeting. Officials also refrained from cutting the deposit rate the institution pays lenders to park cash with it overnight to less than zero.

The euro gained 9.8% in the past year, the biggest advance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The pound added 4.5% and the dollar rose 3.7%, while the yen fell 18.1%, the worst performer.


“While there is an economic recovery in the euro area, the momentum is slowing,” said Alvin Tan, a London-based director of foreign-exchange strategy at Societe Generale SA. “But for the euro to take a sustained hit to the downside we definitely need the ECB to really move to a more dovish message.”

The Australian dollar fell versus all 16 of its most-traded counterparts after RBA Governor Stevens said that he would prefer the currency be closer to 85 U.S. cents and highlighted his preference for a weaker Aussie over lower rates to spur the economy. The currency dropped 1.3% to 89.31 U.S. cents after falling to the lowest since Aug. 30.

New Zealand’s kiwi fell 0.1% to 82.50 U.S. cents, after rallying as much as 0.8%.

The nation’s central bank kept its key rate at a record-low 2.5% today while saying the level of stimulus is becoming unnecessary. The rate will probably need to rise 2.25 percentage points over the next 2 1/4 years, Reserve Bank of New Zealand Governor Graeme Wheeler said.

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