Dukascopy Afternoon Forex Overview – Sept 07 09

Previous session overview

Renewed merger-and-acquisition activity and a weekend pledge by the world’s most powerful economies to push on with fiscal and monetary stimulus boosted equity markets and high-yielding currencies Monday, leaving the dollar on the defensive.

Risk remained the driving force in foreign-exchange markets, with pro-risk plays getting a boost from the pledge by Group of 20 finance ministers and central bankers on Saturday to continue stimulus measures until an economic recovery is secured, strategists said.

The U.S. dollar and the Japanese yen have tended to weaken on rising risk appetite, as investors shun perceived safe havens in favor of higher-yielding currencies and assets.

Activity was expected to be light over the remainder of the day with U.S. markets closed for the Labor Day holiday.

The euro traded at USD1.4339 versus the dollar, up from USD1.4303 in North American trade late Friday.

The dollar changed hands at JPY92.94 versus the Japanese currency, off slightly from around JPY93.00.

Market expectation

The dollar seems poised to remain next week a favorite of investors seeking shelter from economic uncertainty as U.S. payrolls numbers failed to spark a return to trading on fundamentals.

Investors are getting mixed signals on a global economic recovery, so they are employing a risk-based trading strategy, heading into the safe-haven dollar and yen when conditions cloud but seeking profits in high-yielding currencies, such as the euro, when the outlook brightens.

EURUSD pulls back to retests strength of reported demand interest in the area between USD1.4325/20. Stops noted on a break of this area, which if triggered to open a deeper move toward USD1.4305/00 ahead of USD1.4290. Bids noted ahead of this latter level with larger stops below.

Pound moves below USD1.6390, but seen meeting demand interest placed ahead of USD1.6380, which so far provides some cushioning. Below here and earlier Asian low at USD1.6365 (50% USD1.6288/1.6445) moves into view. A break here may allow for a deeper move toward USD1.6350 ahead of USD1.6325/20.

Financial markets are closed Monday in the U.S. and Canada for Labor Day, which will tend to keep volumes low at the beginning of the week. As markets return to normal volumes later in September, increased liquidity will mean currencies could finally break out of their well-established ranges, said analysts.

Analysts said they expected that no major surprises on the growth front are likely, though new yuan loans data will be the key risk factor, with concerns they may come even lower than July’s large drop-off.

Source: Dukascopy