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U.S. Dollar Strengthens On Trade Optimism

The U.S. dollar advanced against its major counterparts in the European session on Wednesday, erasing its early losses, as U.S. treasury yields spiked up after the U.S. and China wrapped up trade talks amid signs of progress on key issues.

Sentiment lifted up after talks have been extended for an unexpected third day, with US President Donald Trump saying on Twitter that "Talks with China are going very well!"

Ted McKinney, US under secretary of agriculture for trade and foreign agricultural affairs, said that the talks went fine but he didn't give further details.

Signs of progress in US-China trade talks triggered speculation that a trade deal can be struck ahead of a March 1 deadline established by Trump and Chinese President Xi Jinping last month at the G-20 summit in Argentina.

Investors await the Fed minutes from December meeting, when it raised rates for the fourth time in 2018.

The minutes will be scrutinized for clues on future rate hikes, although the information is of little relevance since Fed Chairman Powell softened his tone on future rate hikes last week.

The U.S. treasury yields rose with the benchmark yield on 2-year note higher by 2.6 percent, while that of 10-year equivalent was up by 2.7 percent. Yields move inversely to bond prices.

The currency fell against its major counterparts in the Asian session, with the exception of the yen.

The greenback recovered to 1.2716 against the pound, from a low of 1.2777 hit at 3:45 am ET. The greenback is seen finding resistance around the 1.25 level.

The greenback bounced off to 0.9814 against the Swiss franc, from a low of 0.9791 touched at 4:30 am ET. The next possible resistance for the greenback is seen around the 0.995 mark.

Figures from the Federal Statistical Office showed that Switzerland's consumer price inflation slowed in December to its lowest level in 10 months.

The consumer price index rose 0.7 percent year-on-year following a 0.9 percent increase in November. Economists had expected a 0.8 percent climb.

After falling to 1.1479 against the euro at 2:45 am ET, the greenback reversed direction with the pair trading at 1.1439. The greenback is poised to challenge resistance around the 1.12 mark.

Preliminary data from the Federal Statistical Office showed that Germany's merchandise trade surplus grew in November to its biggest level in five months as imports fell unexpectedly, and exports decreased, giving further evidence of a slowdown in the biggest euro area economy.

The non-adjusted trade surplus grew to EUR 20.5 billion from EUR 18.9 billion in October.

The greenback held steady against the yen, after having advanced to 109.00 early in the Asian session. At yesterday's close, the pair was worth 108.74.

On the flip side, the greenback dropped to a 3-week low of 0.7171 against the aussie, near 3-week low of 0.6779 against the kiwi and a new 5-week low of 1.3223 against the loonie, from its early highs of 0.7134, 0.6721 and 1.3278, respectively. If the greenback falls further, 0.73, 0.69 and 1.31 are possibly seen as its support levels against the loonie, the aussie and the kiwi, respectively.

Looking ahead, at 8:15 am ET, Canada housing starts for December are set for release.

In the New York session, U.S. advance goods trade data for December will be out.

The Bank of Canada announces its interest rate decision at 10:00 am ET. Economist widely expect the benchmark rate to remain unchanged at 1.75 percent.

At 2:00 pm ET, the Fed releases minutes from the December 18-19 meeting.

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