Dukascopy Afternoon Forex Overview – Oct 5 2009

Previous session overview

The dollar remains weaker against the euro in early Monday trading, continuing its decline after last week’s weaker-than-expected U.S. data failed to extinguish risk appetite.

The common currency also could have benefitted from the outcome of a weekend meeting of Group of Seven finance ministers. The officials did not express concern over dollar weakness in their communique, which helped set the stage for further dollar selling.

The currency market’s response to Friday’s disappointing U.S. non-farm payrolls data indicates investors might be willing to tolerate some bad news, as long as they remain assured the Federal Reserve will maintain its loose monetary policy, keeping the ultra-low interest rates that allow investors to use the buck to fund riskier investments.

The dollar gained initially Friday on the worse-than-expected U.S. jobs data, but by the end of the day, the euro had shaken off the bad news and ended stronger than the greenback.

As global trading resumed Monday, investors took the news that G-7 finance ministers did not explicitly express support for a strong dollar at their weekend meeting in Istanbul as a signal they can continue using cheap U.S. dollars to fund bets in higher-yielding currencies, such as the euro and Australian dollar.

Market expectation

Some traders now speculate that if the U.S. currency drops below a January low of JPY87.10, or the psychologically important JPY85.00, Tokyo may sell the yen for dollars for the first time since March 2004 to curb its strength. Those levels compared with JPY89.75, where the dollar traded late Friday.

Pound sliding to fresh lows for the day now as the dollar gains momentum into the US session. Bids still noted down to USD1.5900 with techs then seeing minor support levels at USD1.5888 and USD1.5856 (61.8% and 76.4% of Friday-Monday rally).

In several traders view, dips in the Greenback remain buying opportunity and if volatility remains high short-term traders will have a lot of opportunity as the majors cover a lot of the same ground twice. Analysts saying to Look for the USD to hold firm on dips today and generally build on last week’s potential bottom. Should the correction be developing as expected a large move to end the week higher is not out of the question.

Movers & Shakers:

Important levels:

Source: Dukascopy