Dukascopy Afternoon Forex Overview – Sept 08 09

Previous session overview

The euro and other higher-yielding currencies traded sharply higher against the dollar Tuesday as risk appetite returned to the foreign exchange market with vengeance.

The euro broke above USD1.4500 early in New York, its highest level since Dec. 18. With the single currency having smashed through the summer’s ranges, its next ceiling is USD1.4720, the high it also reached in December last year.

Investors rode a wave of confidence on positive euro- zone economic data, an overnight stock rally in Asia and Europe and support for continued economic stimulus from G20 ministers.

Also putting pressure on the dollar is gold, which is above USD1, 000 an ounce Tuesday for the first time since February.

Contrary to expectations, data Tuesday from the German Economics Ministry showed that industrial output fell 0.9% in July compared with June, mirroring a similar trend in Spain and in other European economies that are euro-zone trading partners.

Market expectation

Investors appeared to be still taking their cue into higher-yielding currencies from G20 assurance over the weekend that there is no hurry to bring an end to the extraordinarily easy monetary policy in most major economies.

USDJPY eases lower for trade around JPY92.05/10 area as the pair remains a laggard to dollar slippage elsewhere, the dollar seeing an overnight low at JPY92.04 in European trading. Bids mentioned earlier at JPY92.00 area remain intact and demand was reported earlier in the JPY91.80/70 zone as well. Chatter from a couple of directions now adding stops in that lower area, suggesting trade there may turn choppy. Dollar last at JPY92.15.

EURUSD saw a high print at USD1.4507 in recent trade but chops quickly lower for USD1.4485 prints, analysts said among the current buyers. Offers remain intact at USD1.4520/25 area.

Pound is finding support around USD1.6550, after the last rally extended the topside to USD1.6590 from Asian lows at USD1.6322. A break of USD1.6550 may open a deeper move toward USD1.6525/20 ahead of USD1.6500, USD1.6485/80 with stronger interest at USD1.6460/50. Offers remain in place between USD1.6590/00 with stops in place on a move above the figure.

The German data dampened hopes that the euro zone might be led out of recession by its largest economy and most prolific exporter. Economists said sustainable growth will require stronger domestic demand, which is unlikely given weak labor markets and jammed credit markets.

Economists will be watching for more indications of a possible relapse in output this fall. European government and central bank officials have warned that rising unemployment, scarce access to credit and protectionism could stifle the recovery if policy makers are complacent.

Source: Dukascopy