Previous session overview
The dollar remains under pressure if off earlier intraday lows Friday, after a flurry of strong economic numbers from China overnight gave a further lift to risk appetites.
The latest Chinese data on industrial production, retail sales and lending were all beyond expectations, developments which helped the Shanghai Composite Index to rally 2.0% and the price of gold to rise back to around the USD1,000 per ounce mark.
For foreign exchange, the news also contributed to fresh multi-month U.S. dollar lows against the euro and the yen, although a pre-weekend tendency toward position-squaring has limited the dollar’s losses and enabled it to recover modestly off its weakest levels of the day.
The yen’s gains have come despite some discouraging economic developments in Japan, as the country’s second- quarter GDP growth was downgraded to 0.6% from 0.9%, a factor that helped to ensure that the Nikkei Index lost 0.7% on the day.
EURUSD continues to orbit a narrow range around USD1.4600 area with flows described as light, traders suggest that many want to participate but are either waiting for the dip or waiting for the break. Overnight high area at USD1.4628 still said to hold supply after the push higher was rebuffed, stops positioned above. Bids back at USD1.4570 with stops positioned below. Euro last at USD1.4590.
USDJPY holds near JPY91.00 area as it maintains its rebound level after seeing European hour’s lows at JPY90.69 after a swath of stops were flushed on the break of JPY91.00. Rebound got an assist from vigorous dollar buying out of Tokyo, traders say, adding Japanese retail accounts to the earlier talk of semi-official buys off the low. Bids expected in the JPY90.75/80 area, further down to JPY90.60 with barrier strike noted at JPY90.50 and JPY90.25, stops positioned below each.
Currency watchers believe that the yen’s recent strength is less a product of fundamental developments than of factors like repatriation flows into Japan at the end of the fiscal half-year there, as well as due to persistent dollar weakness as a result of the ongoing portfolio asset shift.
In traders view, the USD is really working hard at bottoming; volatility has been high and official interest is actively buying. With sentiment and technical’s very oversold USD is primed for a strong rally; at least to correct the oversold condition. Look for profit-taking by the shorts to end the week, today’s US data may be the catalyst.