Dukascopy Morning Forex Overview – Oct 2 2009

Previous session overview

The dollar and euro fell against the yen Friday as investors cut down on the riskier currencies for the safe-haven Japanese unit after a slew of bad U.S. economic data and poor stock moves overnight made them more bearish about the two currencies.

Players were more averse to riskier currencies after a poor showing overnight in the U.S. Institute for Supply Management index of manufacturing activity for September. The result helped cause U.S. share markets to tumble, which, in turn, led to a fall by 2.6% in Japan’s benchmark Nikkei 225 Stock Average in early afternoon trade Friday.

That prompted model funds and other short-term players in Japan to sell riskier but higher-yielding currencies like the euro for the yen. The selling, which involves USDJPY selling in the process, also pushed the greenback lower against the yen, dealers said.

The euro extended losses against the US dollar and pound on comments from European Central Bank President Jean-Claude Trichet that excess currency moves have adverse implications. Earlier in the week, Trichet also made comments that it was “extremely important” to have a strong dollar.

Cable closed the US session around USD1.5955, while euro-sterling again ran into bids in the stg0.9080 area, bouncing back end around stg0.9115. Traders said sterling-yen sales knocked the pound into the Asian session Friday as the cross gave back 100-points down to JPY142.00, forcing cable under USD1.5900.

The Australian dollar weakened on Friday in Asia, and interest rate futures soared, as market jitters gained momentum ahead of all-important U.S. jobs numbers due later.

Market expectation

Risk aversion is pressuring the euro, dollar and pound lower against the yen on Friday.

Analysts believe the dollar will start to strengthen against the yen heading into the fourth quarter. Repatriation flows tied to the fiscal half year end have now ended and Japanese investors will return to this year’s strategy of buying higher-yielding foreign bonds with the Japanese yen returning to its role as a funding currency, they said.

With the approach of the weekend meeting of G-7 finance ministers, currency market players will remain cognizant of the possibility of further official statements that could undermine the euro, market watchers said.

Early Europe sees marginal highs for the day, though underlying tone said to remain bearish after this week’s sell-off. Reports of stops under USD1.4500 still, specifically at USD1.4470 and to be particularly large under USD1.4450. Attention now switching to Ireland’s second referendum on the Lisbon Treaty today, though results not expected to filter out until the weekend.

EUR rises vs JPY, USD as players cover short positions; but EUR unlikely to gain much more heading into weekend as players hesitant about betting strongly on unit amid talk euro zone officials may discuss EUR strength at G-7 finance ministers’ meet, says analysts.

European stocks are expected to open lower Friday, as investors adopt a cautious stance and look to book profits ahead of the pivotal U.S. employment report.

Movers & Shakers:

Important levels:

Source: Dukascopy