Dukascopy Morning Forex Overview – Oct 14 2009

Previous session overview

The euro rose to a 14-month high against the dollar in Asia Wednesday amid the broad greenback weakness due to growing expectations the Federal Reserve will keep interest rates low for at least the next year.

The yen also rose against the U.S. unit and the two currencies could rise even further later in the day because of a dearth of dollar-supportive factors, dealers said.

U.S. Federal Reserve Vice Chairman Donald Kohn said overnight in a speech in St. Louis that he expects “the persistence of economic slack, accompanied by stable longer-term inflation expectations, will keep inflation subdued for some time.”

The dovish comments sent the yield on the benchmark 10-year Treasury down to 3.32%. The lower interest rates, coupled with the latest sign that they are likely to stay depressed well into next year, prompted players in Asia to offload dollars, dealers said.

That caused the greenback to weaken broadly against its rivals, particularly against currencies offering higher yields such as the euro and Australian dollar, dealers said.

The Pound was stronger initially on improving UK RICS Housing (at 22, two year high) and Retail Sales figures (2.8% for September), although upside momentum was limited following speculation that UK inflation had been at its lowest level in 5 years.

The Australian dollar forged its way to a fresh 14-month high late in the Asian session Wednesday as renewed greenback weakness and surprising resilience in regional equities markets bolstered risk appetite. At 0500 GMT, the Australian dollar was trading at USD0.9135 up from USD0.9076 late Tuesday and just off its intraday high of USD0.9144, its highest reading since Aug. 6, 2008. Against the Japanese yen, it was trading at JPY81.27, down from JPY81.645.

Market expectation

The euro is higher and seems likely to hold recent gains, even after Tuesday’s disappointing euro-zone economic data.

EURUSD Asian traders note that the USD1.4900 is suggested to hold barrier interest, adding that a major Japanese name has been a noted seller ahead of this level through the overnight session. Rate has been able to extend gains into early European trade but falters at USD1.4899. Rate currently trades back around USD1.4885.

The U.K. pound rebounded during U.S. trading Tuesday, though analysts said sterling still remains under near-term pressure.

Dealers said that unless upcoming U.S. economic data and corporate earnings reports log surprisingly strong results and because U.S. share markets to rally, pushing up long-term U.S. interest rates, the dollar will likely continue weakening for the rest of the weak.

U.S. September retail and food sales are due later at 1230 GMT. Economists expect sales to fall 2.1% on-month, after climbing 2.7% in August. Players will also be watching the third quarter earnings report from J.P. Morgan Chase.

Continued worries over U.K. fiscal policy, including its high deficits, and investor belief the BOE will continue to keep interest rates low, will encourage traders to forsake sterling for the higher-yielding currencies backed by better economic fundamentals, said analysts.

Movers & Shakers:

Important levels:

Source: Dukascopy