Dukascopy Morning Forex Overview – Oct 12 2009

Previous session overview

The dollar rose against the yen and the euro in Asia Monday, building on gains posted Friday after U.S. Federal Reserve Chairman Ben Bernanke said the Fed is ready to tighten monetary policy once a recovery takes hold in the world’s largest economy.

With Japan’s financial markets closed for a local holiday, the dollar also remained supported by a better-than-forecast report on the U.S. trade balance in August released Friday. But currency analysts say the greenback’s prospects remain poor, and it should move lower against main rivals in coming days.

The dollar is out of favor with currency traders because ultra-low interest rates in the U.S. – expected to remain in place for some time yet – have resulted in greater investor interest in other higher-yielding currencies.

At 0505 GMT, the dollar traded at JPY90.18, compared with JPY89.83 late Friday in New York.

The Euro edged lower following Bernanke comments and further weighed upon as a report showed German Exports had declined unexpectedly. This was also reflected in a narrowing of the German trade balance to 8.1 mln from previous 14.1 mln.

The British pound tumbled against the greenback on Friday after Bernanke’s hawkish remarks on dollar. In addition, market expectations that Britain will be the last amongst major countries to withdraw its extremely easy monetary policy due to its poor economic performance also put extra pressure on sterling.

The Australian dollar was weaker in late Asian trade Monday as the greenback rallied amid thin liquidity and on the back of continued speculation the U.S. Federal Reserve may be closer to tightening policy.  The U.S. dollar continued to strengthen against the major currencies on the back of a speech delivered by Fed Chairman Ben Bernanke last week highlighting a readiness to tighten policy when appropriate.

Market expectation

The euro, pound and dollar are higher against the yen Monday, but otherwise are trading in tight ranges. Many investors are sidelined with Japanese markets closed and as many U.S. traders were expected to be away for Columbus Day later.

Most currency watchers are reluctant to impart much lasting significance to the dollar’s rally on Friday’s accumulation of positive influences.

The dollar is generally seen as facing too many obstacles in the near term, including the unlikeness of any imminent turn to tighter policy by the Federal Reserve.

For EURUSD bid interest remains in place between USD1.4680/70, a break to open a deeper move toward USD1.4650. Further demand noted in place below USD1.4630. Tokyo holiday overnight and a Federal holiday in the US (stock markets open) expected to provide for subdued trading conditions.

Monday will be holiday in Japan and Canada.

Movers & Shakers:

Important levels:

Source: Dukascopy