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EUR/USD suffers mild losses, as yields remain in range-bound trade

Published 05/12/2016, 05:46 PM
Updated 05/12/2016, 05:52 PM
EUR/USD lost more than 0.40% on Thursday, closing below 1.14
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Investing.com -- EUR/USD fell mildly on Thursday, erasing most of its gains from the previous session, as government bond yields remained in range-bound trade and investors awaited the release of a wave of key U.S. economic data at week's end.

The currency pair traded between 1.1371 and 1.1429, before settling at 1.1376, down .0047 or 0.42% on the session. The euro has now closed down against the dollar in seven of the last eight sessions. Although the euro is down incrementally against its American counterpart over the last month, it is still up nearly 5% since the start of the year.

EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1713, the high from Aug. 24.

For the most part, foreign exchange traders proceeded cautiously on Thursday ahead of the release of monthly retail and consumer reports to close the week. On Friday morning, the U.S. Census Bureau is expected to report a sharp increase in retail sales for the month of April, follow a mild decline a month earlier. Fueled by continuing strength in auto sales, retail sales are expected to surge 0.9% in April, one month after decreasing slightly by 0.3%. Shortly after, the University of Michigan could report a 0.7 increase in the preliminary May reading of its Consumer Sentiment Index, rebounding from a surprising downturn in April, which represented the most precipitous monthly decline since last September.

Also on Friday, the U.S. Bureau of Labor Statistics is expected to report a 0.3% increase in its Producer Price Index (PPI) for April, following a 0.1% decline a month earlier. The Core PPI Index, which strips out volatile food and energy prices, is expected to increase 0.1% one month after falling 0.1% in March.

Meanwhile, the Labor Department said Thursday that initial jobless claims last week rose by 20,000 to 294,000, defying expectations for an increase of 17,000. It followed a solid JOLTS report from the Labor Department on Tuesday, which showed that job openings in March rose by 149,000 on a seasonally-adjusted basis, lifting the job opening rate by 0.1% to 3.9%. The report came in the wake of a relatively soft April employment report last week, which documented the lowest pace of gains among nonfarm payrolls in seven months.

The Federal Reserve has continually reiterated that it is taking a data-driven approach to the timing of its first interest rate hike in 2016. In December, the Fed ended a seven-year zero interest rate policy by lifting its benchmark Federal Funds Rate 25 basis points to a targeted range between 0.25 and 0.50%. In three subsequent meetings, the Federal Open Market Committee (FOMC) has left short-term rates steady, fueling speculation that the U.S. central bank could delay its next rate hike until September. Any rate hikes by the Fed this year are viewed as bullish for the dollar, as investors pile into the greenback in order to capitalize on higher yields.

Elsewhere, Fed chair Janet Yellen said Thursday that she would not rule out adopting a negative interest rate policy if an extremely adverse scenario arises in the coming months. In a written response to questions from Rep. Brad Sherman, Yellen said the Fed is studying similar regimes in Japan and the euro area. The Fed, Yellen added, would also have to weigh the unintended consequences of the policy before considering the unorthodox move.

Yields on the U.S. 10-Year gained one basis point to 1.75%. Over the last six sessions, yields on 10-year U.S. government bonds have remained in a tight range between 1.705 and 1.793%.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, jumped more than 0.25% to an intraday-high of 94.16, before settling at 94.11. The index is still down more than 4% since early-December.

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