Dukascopy Morning Forex Overview – Sept 28 09

Previous session overview

The dollar fell to an eight-month-low against the yen in Asia Monday due to a growing view that U.S interest rates will remain low for longer than expected, while the euro also dropped to a two-month-low against the yen as a result of risk aversion.

Dealers said the dollar and euro are likely to keep weakening against the yen for the rest of the week.

The greenback fell to JPY88.23, its lowest level since Jan. 23. Players speculate the Federal Reserve may have to maintain both its low policy rate, which is now in a range between 0.00%-0.25%, and other loose monetary policies due to the slow pace of the U.S. economic recovery.

The joint statement from the Group of 20 summit held in Pittsburgh over the weekend is another reason behind the dollar’s drop, dealers said. G-20 members pledged to correct imbalances in the global economy, such as external deficits and surpluses, and to maintain extraordinary monetary policy steps.

The euro rose against the dollar after hitting an overnight low. The European Central Bank said private sector loans contracted for the second month and hit a record low of just 0.1% in August. Data from the national statistics office INSEE reported consumer sentiment index rose to -36 in September, confirming that the economy grew in the second quarter as French consumer morale hit a 19-month high.

Cable was initially higher in antipodean trade; helped by the reports Kraft may launch a hostile stg11bn bid for Cadbury. However, fresh speculation of the potential for negative UK interest rates highlighted how vulnerable sterling remains to negative reports and stops were tripped, including some from US funds, in sterling-yen at JPY142.50 and euro-sterling at stg0.9260. This move in thin liquidity saw a fresh 4-month low for cable at USD1.5770 with only limited bounces helped by demand from the Middle East.

The Australian dollar was lower late Monday, led down by hefty liquidation against the yen cross. The Australian dollar was quoted at USD0.8619, down from USD0.8684 late Friday. Against the Japanese yen, it was quoted at JPY76.864, down from JPY78.755. The Australian dollar hit a low of USD0.8553 and a high of USD0.8682 in the Asian session.

Market expectation

The euro, U.K. pound and U.S. dollar are lower against the yen, while the euro and pound are also falling against the dollar as risk aversion picks up again.

For EURUSD traders noted the overnight sell-off coming despite mildly positive news from the German elections over the weekend as Chancellor Merkel held on to power in a conservative coalition. Support now eyed back at USD1.4548 (21-day m/a), and bids noted in the USD1.4550 area. CTA stops meanwhile are lurking on a break of USD1.4500.

USDJPY traders noting stops from CTA’s placed on a break of JPY90.10/20, with short-term traders also having stops in the JPY90.50 area. Meanwhile, some attention being paid to a Nikkei article, noting anxiety over Japanese corporate earnings as the currency strengthens across the board. Leading exporters are generally thought to have made plans for a JPY90/95 dollar-yen rate, the article suggests.

European stock markets are expected to open on a weaker note Monday, weighed down by negative sessions on U.S. markets Friday and Asia earlier Monday, as concerns mount over the quality of upcoming third quarter corporate earnings.

Movers & Shakers:

Important levels:

Source: Dukascopy