The dollar rallied broadly on Thursday, rising to a high for the year against the euro, and on a trade-weighted basis, after a strong US retail sales report fuelled waves of buying. US retail sales in April surged 1.4 percent on the month, up from March's upwardly revised 0.4 percent increase and overshooting expectations for a 0.7 percent rise. This was the strongest showing in seven months, and core sales excluding autos were up a surprisingly strong 1.1 percent. Following data in the last week showing strong job creation in April, and a shrinking trade deficit in March, the retail sales figures further stoked the market's increasingly bullish sentiment toward the dollar and US economy.
"Really nice data surprises to the upside have given the dollar a boost," said Lara Rhame, currency strategist at CSFB in New York. "We've seen the dollar embracing the (positive) data much more wholeheartedly than the bond market or the stock market," Rhame added, noting the rise in Treasury prices and fairly steep fall in stocks on Thursday.
At the end of New York trade, the euro was down at $1.2692 down about 0.9 percent from late Wednesday. It fell as low as $1.2685, the lowest in six months.
The dollar rose to 106.76 yen, up around 0.9 percent on the day. After hitting a one-month peak against the Swiss franc at 1.2173 francs, the dollar settled around 1.2151 francs late in the day, still up around 0.7 percent.
Sterling was off around 0.4 percent at $1.8652.
The euro's fall below the low for the year around $1.2730 is being seen as a key technical development for the currency that suggests further weakness ahead.
"In the FX market, the (economic) data has helped euro/dollar take out the key $1.2730 level, and point to significant dollar gains ahead, potentially extending to $1.25 as some longer-term shorts start to bail-out," wrote Alan Ruskin, director at currency and fixed income research firm 4Cast, in a note.
Short positions are effectively bets that a currency would depreciate.
Rhame at CSFB said the euro will almost definitely make a new weekly closing low on Friday, which further compounds it's technically bleak outlook.
Steven Englander, chief currency strategist for North America at Barclays Capital in New York, said the retail sales data "confirmed that the US economic soft patch is not so soft."
He lowered his three- and six-month forecast for the euro after the data were released to $1.26 and $1.25, both from $1.30 previously.
UBS's currency strategy team retained its bullish forecast for the euro, recommending long positions at these low levels. But this positive outlook is under threat, they added.
Activity in the currency options market suggest investors are gearing up for more euro weakness, with one investor said to have bought a 1.25 billion one-month euro put/dollar call option with a $1.22 strike, according to market sources.
Essentially, the investor is betting the euro will fall below $1.22 before the expiry date.
Other US economic data released on Thursday showed that initial jobless claims rose for the third straight week, climbing to 340,000 in the week ended May 7 from an upwardly revised 336,000 the previous week.
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