Dukascopy Afternoon Forex Overview – Oct 13 2009

Previous session overview

The euro hit its highest levels against the dollar since September 2008 in early New York trading Tuesday, as investors chase higher yields despite some discouraging economic reports from the euro zone.

Worse-than-expected overnight euro-zone data failed to halt the common currency’s march toward USD1.50, a level that is a target for traders.

The allure of higher returns in the euro, the Australian dollar and other better-yielding currencies, fuelled by positive third-quarter corporate earnings, led investors to shake off the disappointing German data, said Stuart Bennett, senior currency strategist at Calyon in London.

The ZEW economic expectations index for Germany fell to 56 from 57.7 in September; economists had forecast the expectations index to be unchanged. The current German economic conditions index remained “very poor,” the ZEW institute said, with a modest increase of 1.8 points to a level of -72.2, a reading not as good as economists expected.

Germany Reports from some of the euro zone’s biggest economies Tuesday underscored warnings that the region’s economic recovery could be dogged by setbacks.

The euro hit USD1.4876 in early New York trading, a level not seen since September last year. It has since given back some of those gains, but remains sharply higher on the day.

Market expectation

Pound recovery off pullback lows around USD1.5785 (38.2% USD1.5708/1.5829) seen extending to USD1.5815, the rate in late European morning trade able to move above earlier Asian highs at USD1.5825 to USD1.5829. Offers now seen placed to USD1.5820, with interest extending now to USD1.5830, a break to expose stronger area between USD1.5845/50. Support remains back at USD1.5785/80.

EURJPY attempting to regain a foothold above JPY133.00, though as yet the move comes with a lack of momentum as the European high remains untested at JPY133.25. Offers still noted into JPY133.30 with technical analysts then seeing trend line resistance from the August highs at JPY133.65. The 76.4% retrace of the September-October sell-off comes in at JPY133.95, followed closely by the top of the Ichimoku Cloud at JPY134.00. A close above the Cloud base (JPY132.86) still needed to take the focus away from the downside.

Traders are noting that Loonie has de-coupled from recent commodity driven price action and is moving more from an assumption that the BOC will move quickly to raise rates. Traders think that, the relentless USD selling is putting the USD into record oversold territory as sentiment and technical’s now push into areas almost never seen in any market; the Greenback is reaching a euphoria/frenzy for sellers. Most traders are bearish but are shaking their heads wondering where the correction is. Should Gold, Oil or Stocks have a correction it will likely take the USD the other way as late sellers will cover; look for caution to be the rule this week and more two-way action is likely.

Movers & Shakers:

Important levels:

Source: Dukascopy