Dukascopy Morning Forex Overview – Oct 5 2009

Previous session overview

Demand from importers pushed the dollar up against the yen in Asia Monday, but the U.S. unit’s upside is likely to be limited because the weekend Group of Seven meeting didn’t issue a clear warning about a too-strong yen.

The U.S. currency rose slightly to JPY89.79 as of 0450 GMT, compared with JPY89.75 late Friday in New York. Japanese importers settle their accounts on the 5th, 15th and 25th of every month, and they buy dollars to pay their bills.

G-7 finance chiefs in Istanbul issued a statement saying that excessive exchange rate volatility and disorderly movements are undesirable for the global economy, but traders said it wasn’t enough to stop the yen bulls.

The euro gained against the US dollar and erased earlier losses after US job losses came in worst-than-expected. The single currency initially fell to a three month low against the dollar as risk aversion emerged in the market. As the weak September US jobs report settled, fears the US economy is not on a fast recovery pushed the euro higher.

The British pound was generally a laggard on Friday, gaining only against the Australian dollar and Japanese yen, despite some positive economic data. According to Nationwide Building Society, house prices in the UK rose for the fifth consecutive month in September, this time at a rate of 0.9 percent to GBP161,816, suggesting that the housing sector is slowly recovering. However, housing starts seem to remain weak as the purchasing managers’ index (PMI) for the construction sector slipped to 46.7 in September from 47.7, signaling a contraction in activity.

The Australian dollar was stronger late Monday, strengthened by expectations that the Reserve Bank of Australia could raise could raise interest rates as early as Tuesday.

Market expectation

Players are closely watching stock indexes in Asia. If they resume falling sharply, the yen may strengthen as dealers dump riskier assets and put their money back in the Japanese currency.

The euro rose against the yen and the dollar on buying by Japanese importers. Players will watch commodity and share markets for the European unit’s outlook as the euro is one of the most sensitive units to players’ risk tolerance.

The current weak dollar trend is based on bets by dealers that the Federal Reserve will keep its interest rate low and won’t unwind its easing policy in the face of a slow domestic economic recovery. Global policy-makers might also tolerate a further dollar decline to help reduce the U.S.’s huge current account deficit and Japan and China’s big current account surpluses.

EURUSD reported supply in the USD1.4630’s from an Asian sovereign now under pressure as the rate recovers from the earlier dip towards USD1.4610. A break above this area may expose further offers at USD1.4650/70.

Movers & Shakers:

Important levels:

Source: Dukascopy