Dukascopy Morning Forex Overview – Oct 9 2009

Previous session overview

The dollar regained lost ground against the yen and euro in Asia Friday after U.S. Federal Reserve Chairman Ben Bernanke said the Fed is ready to “tighten monetary policy” once a recovery takes hold, prompting Asian hedge funds to buy the greenback.

But broad dollar-bearishness may continue, traders said, adding that the U.S currency may fall back to JPY87.00 in the near term, while the euro could rise to USD1.4850.

In a speech in Washington during the Asian morning, Bernanke said that “we will need to tighten monetary policy” when an economic recovery takes hold, while also acknowledging that the Fed continues to believe that a loose monetary policy will be needed for an extended period.

The comments prompted Asian hedge funds and speculators to buy the dollar, as the remarks reversed some of the recent pessimism on the U.S. economic outlook, dealers said.

The dollar climbed to an intraday high of JPY89.32, compared with JPY88.42 late Thursday in New York.

The Euro rallied higher, supported by a positive reading in German Industrial Production and a decision by the ECB to leave monetary policy unchanged, with President Trichet that current levels were appropriate with it being too early to draw conclusions.

The Pound rose against a broadly weaker US dollar, supported after the Bank of England kept interest rates unchanged as widely expected and reiterated it would keep its asset-buying program under review. The pound, however, failed to extend gains on the view that ongoing weakness in the economy might require more stimulus from the BoE.

The Australian dollar was stronger late Friday, but pared gains made in an earlier run to a fresh 14-month high on speculation the Federal Reserve may be close to tightening policy.

Market expectation

The dollar is rebounding Friday after Federal Reserve Chairman Ben Bernanke said the central bank needs to tighten its grip on monetary policy when economic recovery is in place.

Traders said the U.S. unit may resume falling as the Fed is likely to keep its interest rates low over at least the next 12 months.

Some signs of interest in buying back currencies against the dollar have appeared already on Friday.

Pound Technical traders are highlighting a potential bearish sign as the 55-day and the 100-day moving averages look close to staging a negative cross. The 55-day crossed above the 100-day in May, with cable subsequently staging a strong rally from the USD1.40’s on to a USD1.66 handle.

EURUSD picking up increasing talk of stops in the USD1.4690 area, though for now EURUSD is slowly extending European highs. Offers are at USD1.4755/60, more around the Asian peak at USD1.4795/00.

European stocks are expected to open lower Friday as the main markets in the region take a breather after edging back close to their 12-month highs this week.

Movers & Shakers:

Important levels:

Source: Dukascopy