“Markets seem to have headed into the weekend priced for the worst -- a North Korean missile test and maximum financial damage from Irma,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “The dollar seems overdue for a bounce. The dollar should return to 109 to 110 yen early in the week.”
The dollar is also supported by “decent” U.S. economic data momentum and a deal between President Donald Trump and the Democrats suspending the debt ceiling to December, Callow said.
Still, traders said some short-term accounts took long-yen positions after the state-run Korean Central News Agency said Monday morning that the U.S. will pay a "due price" if harsher sanctions were imposed on North Korea at an expected United Nations Security Council meeting.
The Dollar has a widening interest rate differential with its largest trading partners, an economy that is expanding, a hot technology sector, full employment and the prospect of reduced supply as the Fed begins to tinker with the size of its balance sheet.
However, it has been falling all year not least because the market has calculated that if tax reform is introduced it may result in a looser fiscal condition. Meanwhile government bond yields continue to represent scepticism that deflation has been entirely overcome.
The Dollar is currently oversold against both the Euro and Yen so there is scope for a reversionary rally.
It bounced today against the Yen to potentially set up a failed downside break scenario. Upside follow through tomorrow and a sustained move above ¥111 would signal a return to demand dominance beyond short-term steadying.
The Euro’s advance has paused in the region of €1.20 but it needs to break the progression higher reaction lows evidence since January to confirm more than temporary supply dominance.
Gold rallied for seven of the last eight weeks but has now paused near last year’s high near $1350. It will need to hold the $1300 area during any consolidation if potential for higher to lateral ranging is to be given the benefit of the doubt.