Dukascopy Morning Forex Overview – Sept 14 09

Previous session overview

The dollar marked a fresh multi-month low against the yen in Asia Monday, and traders said the currency is likely to fall below JPY90 this week due to growing pessimism over the outlook for the U.S. economy.

The greenback fell to JPY90.18, its the lowest level since Feb. 12, from JPY90.64 in New York Friday. Profit-taking on the yen by funds caused the U.S. unit to recover a tad to JPY90.49 as of 0450 GMT.

EURUSD opened Asia around USD1.4570, initially recovering to post session highs at USD1.4609 before reversing on general risk aversion trade following China’s reaction to the weekend imposition by the US of tariffs on imported Chinese tires (China announced a probe into US dumping of auto parts and chickens into China). Weak stocks and a softening in commodity prices added to the risk off tone with sales of euro-yen providing added weight to take euro-dollar to lows of USD1.4521. Rate recovered to USD1.4555 (38.2% USD1.4609/1.4521) before meeting further supply, easing back to retest earlier lows into early Europe. Rate extended lows to USD1.4515, meeting decent demand on the dip before recovering back to USD1.4540.

Pound showed firm bias and rose to as high as 1.6742 in European morning, the highest level since 10th August due to U.S. dollars’ broad-based weakness and better-than-expected PPI data (core PPI in August rose 0.2% monthly and 0.7% yearly), however, price retreated in late U.S. session on long liquidation ahead of weekend.

The Australian dollar Monday ended the local session lower as signs of trade tensions between the U.S. and China boosted the U.S. dollar at the expense of the local currency. The high yield unit fell sharply on news China would restrict certain U.S. imports in response to a plan by U.S. President Barack Obama to place tariffs on tire imports from China.

Market expectation

The dollar is recovering a bit Monday, giving the U.S. currency a respite from recent weakness, with the retreat in stocks rekindling its safe-haven role.

The euro fell against the dollar and yen as investors squared their positions, but the market’s dollar bearishness means the European currency could rise again soon. It dropped to USD1.4541 from New York Friday’s USD1.4582, but some said it could head back above USD1.4600. The euro also fell to JPY131.56 at 0450 GMT from JPY132.21 late Friday.

The view that the U.S. economy remains weak will likely further drag down the dollar, traders said. Fragile financial market conditions in the U.S. means the Federal Reserve will likely have to keep interest rates low and pump funds into markets. Expectations that a worsening U.S. job market will hurt consumer spending are also spurring dollar selling.

Traders said they will be watching U.S. economic data this week, such as Tuesday’s retail sales for August, to judge the current state of the U.S. economy.

EURJPY ease to JPY131.50, from its opening level around JPY131.59, found decent demand interest ahead of the Tokyo fix which lifted rate back to JPY131.99. Exporter sales post fix pressured rate to session lows of JPY131.30 before rate edged back, meeting resistance around JPY131.70 (61.8% JPY131.99/30). Above this area and rate can edge back toward JPY132.00. Bids remain in place from around JPY131.30, strengthening toward JPY131.00 with reports of stops below.

Players are also wondering how the new Democratic Party of Japan administration will deal with recent yen strengthening, considering that some of its lawmakers have voiced support for a strong Japanese currency. However, a rising yen tends to weigh on exports, a key part of Japan’s economy, by making Japanese products more expensive abroad.

Source: Dukascopy