FOREX-Dollar bulls shaken out of crowded positions, China eyed

10/12/2014 06:38 AST

The dollar nursed hefty losses early on Wednesday following a brutal shakeout of bullish positions as investors found excuses to take profits as the year-end loomed.

Spooking markets, political uncertainty in Greece appeared to have reignited worries about Europe, prompting a flight to safety into U.S. Treasuries. That drove yields lower, which in turn knocked the dollar index off a near six-year perch.

The greenback slid to 119.68 yen, having dropped more than 2 percent at one stage to 117.90 in a vicious turnaround from a seven-year peak of 121.86 set on Monday.

The euro rallied as far as $1.2448 from a two-year trough of $1.2247, but has since been cooling its heels at $1.2373.



The Australian and Canadian dollars also bounced off multi-year lows, with the Aussie flying as high as $0.8371 from a 4-1/2-year trough of $0.8223, before lapsing back.

"Anyone who bought USDs at the start of this week after Friday's NFP and ECB QE jaw-boning has been hosed," said Gavin Friend, senior markets strategist at National Australia Bank.

The Greek government brought forward a crucial presidential vote to next week that would force nearly two dozen independent lawmakers to decide whether to side with Prime Minister Antonis Samaras' pro-bailout government or leftist radicals who have vowed to tear up the bailout.

Yet, traders said the moves overnight were driven more by position adjustments rather than a sudden change in the fundamental view.

"Flows were short term in nature, with poor liquidity exaggerating price action in each direction," analysts at CitiFX wrote in a note to clients.

Indeed, Friday's upbeat U.S. nonfarm payrolls data only served to highlight the diverging outlook between the United States and most of the developed world.

On Monday, Atlanta Federal Reserve Bank President Dennis Lockhart said the Fed should still be on track to begin raising interest rates in the latter half of 2015, a dollar-positive view held by the market for some time now.

In Asia, the focus will be on inflation data out of China. Any downside surprises should bolster the case for further easing by the country's central bank.

Reuters