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US dollar buoyed by positioning for possible Jackson Hole rebound

[ATHENS] The US dollar rose against most Group-of-10 peers amid profit-taking on short positions and as fresh long exposure was added before the Federal Reserve's annual economic symposium later this week.

The Bloomberg Dollar Spot Index rose by 0.3 per cent as of 10:22am London, following a drop of 0.6 per cent since Friday. Some investors trimmed their short exposure in the greenback after the gauge hit a three-week low on Monday, according to traders in Europe, looking to add again should the rebound in place start losing steam. Leveraged accounts were also seen adding fresh long positions as they see upside risks into Federal Reserve Chair Janet Yellen's speech at Jackson Hole, Wyoming on Friday.

Even as the dollar gauge looks to erase Monday's losses, the medium-term outlook was little changed. The downtrend this year remains firmly in place, with August's trading pattern resembling more of a consolidation phase than a significant rebound.

Bloomberg's fear and greed indicator suggests bulls are in control this month, yet the US currency trades just 0.4 per cent higher.

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Long-volatility trades remained in demand as the Jackson Hole summit has the potential to move markets even if it fails to be characterised as a game changer. Front-end volatilities in major currencies retain a bullish bias while on longer tenors, long-vega trades lose traction.

After a speech by ECB's vice-president Vitor Constancio, large expiries in the euro and the yen may dictate price action. The market looks short-gamma outside Friday's ranges and may end up in chasing price action, said the traders, who asked not to be identified as they weren't authorised to speak publicly.

The yen was lower for the first day in five as caution over the Korean peninsula remained in the background USD/JPY rose as much as 0.4 per cent to 109.46, its highest level since Aug 18; offers up to 109.50 absorbed buying pressure, with additional offers seen at 109.75.

BLOOMBERG