• Dollar Drops to Two-Week Low Versus Yen as Treasury Yields Fall

The dollar dropped to a two-week low against the yen as traders pushed it through stops in thin trading amid a slide in Treasury yields.

The greenback weakened against all its major peers Thursday, with leveraged funds shorting the dollar against the yen as the currency pair continued a pull back from a 10-month high. Bloomberg’s dollar gauge posted a sharp retreat from gains earlier this week, after a strong five-year Treasury note auction Wednesday sent yields lower, sapping demand for the U.S. currency.

“On the rise we didn’t see any strong resistance, so it will be the same on the fall,” said Simon Pianfetti, a senior manager at the market solutions department at SMBC Trust Bank Ltd. in Tokyo. Stop-hunt below 116.55, the low set on Dec. 19, he said, adding that the next cluster of support lies at 115-115.25 yen.

The dollar has climbed about 11 percent against the yen since the U.S. election of Nov. 8 that swept Donald Trump to the presidency, the most among Group of 10 peers. The rally may be over-extended given that the S&P 500 Index and Treasury yields showed signs of topping out in mid-December when the Federal Reserve raised benchmark rates.

“Almost nobody believes Trump can implement everything he’s promised to do,” said Satoshi Okagawa, senior global market analyst at Sumitomo Mitsui Banking Corp. in Singapore. “At some point, Treasury markets will come to realize that, and yields will decline.”

• USD/JPY sinks as much as 0.9% to 116.23
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  • One-day yen repo rate for transactions starting next business day slides 16bps, most since Sept. 29, to -0.247%: Japan Securities Dealers Association
• BOJ Governor Kuroda says government can’t relax as nation still isn’t in condition to hit 2% inflation target: Nikkei
• Dollar rally is set to extend next year, and magnitude of gains may surprise bulls, says Todd Elmer, FX strategist at Citigroup
• EUR/USD rises 0.4% to 1.0453
• AUD/USD gains 0.4% to 0.7205, with MACD and slow stochastics suggesting shift in momentum after 3-week slide; Aussie bonds higher, in line with Treasuries
  • NAB notes that the last time the RBA’s cash rate sat below the Fed’s, AUD/USD fell to as low as 0.48; however, stronger terms of trade indicate any drop for Aussie will be limited to 0.65 unless there was a U.S.-instigated trade war
• Oil retreats from 18-month high, while gold advances. Yield for 10-year Treasuries falls 2bps to 2.49% after slumping 5bps Wednesday