Dukascopy Afternoon Forex Overview – Oct 20 2009

Previous session overview

The euro remained stronger against the dollar in morning New York trading Tuesday, but has pulled back from overnight highs near the psychologically important USD1.50 mark after weaker-than-expected U.S. housing data dented risk appetite.

However, the common currency’s retreat is likely to be temporary, and currency moves throughout the session are likely to track the stock market and its response to corporate earnings, analysts said.

U.S. housing starts in September increased 0.5%, less than the 2% increase economists had expected. Housing permits also dropped 1.2%. Economists had expected permits to increase by 2.8%.

The euro rose to USD1.4994 in overnight trading as investors piled into risky trades buoyed by strong U.S. corporate earnings and a tough statement on inflation from the Australian central bank.

Minutes from the Reserve Bank of Australia’s Oct. 6 meeting indicated the RBA could again raise key interest rates as early as November, analysts said. The RBA was the first central bank of a major economy to raise key interest rates.

The central bank tightened its rates to 3.25% from 3.00% in October. The Australian dollar rose to its highest level since August 2008 before pulling back by the U.S. session.

Market expectation

Analysts said data this week may not have a lasting impact on currency markets. Instead, investors are watching for the euro to break through the USD1.50 mark, they said.

This level may prove a challenge for the euro given that there are major orders to buy dollars just ahead of the USD1.50 mark. But once the euro finally breaks through USD1.50, the move upward toward USD1.5050 could come very quickly, analysts said. The common currency could reach USD1.50 Tuesday.

USDJPY gains extended to near to JPY90.40 area after the pair found a base around JPY90.12 just a short while ago, some bids showing up ahead of earlier reported demand interest at JPY90.00, traders say. Flows modest in the pair as market tries to determine the next moves for the yen, recent yen longs across all pairs set in the wake of the elections now largely squeezed out, the traders assert. Offers placed at a relatively distant JPY91.00/10.

EURGBP stretched to lows of stg0.9084, with traders linking sterling demand to strong cable buys from a UK clearer, this rate pushing up to USD1.6490. Earlier talk placed bids at stg0.9075/70, but now getting flashed that there a ‘lot of stops positioned from below stg0.9080. Recent talk noted large stops under stg0.9070.

Movers & Shakers:

NZD/USD +1.00%
GBP/USD +0.92%
AUD/USD +0.74%
GBP/CHF +0.43%
GBP/JPY +0.42%
EUR/USD +0.35%
AUD/JPY +0.24%
AUD/NZD -0.26%
EUR/AUD -0.40%
USD/CAD -0.47%
USD/CHF -0.49%
EUR/NOK -0.50%
USD/JPY -0.51%
EUR/GBP -0.58%
USD/SEK -0.60%
USD/NOK -0.84%

Important levels:

Support Resistance
EUR/USD
1.4870 1.5024
1.4772 1.5080
1.4716 1.5178
GBP/USD
1.6288 1.6483
1.6168 1.6557
1.6094 1.6677
USD/CHF
1.0069 1.0195
1.0024 1.0276
0.9943 1.0321
USD/JPY
90.380 91.155
89.990 91.540
89.605 91.930

Source: Dukascopy

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