Dukascopy Morning Forex Overview – Oct 7 2009

Previous session overview

The dollar edged higher against the yen and the euro in Asia Wednesday as U.S. hedge funds engaged in bargain-hunting, but dealers said the greenback’s broad weakening trend is still intact.

Japanese importers also bought dollars so that they could purchase natural resources, such as oil, cheaply overseas, pushing the U.S unit to a high of JPY89.07 early in Asian trading, dealers said.

But the dollar later lost most of its gains and was trading at JPY88.80 as of 0450 GMT compared with JPY88.76 in New York late Tuesday.

Euro pushed on to USD1.4763 high in the US session, closing the day around USD1.4720 against a backdrop of positive US stocks. Initial tone into Asia was positive as a Scandinavian bank triggered stops at USD1.4725, though gains were capped at USD1.4735 before a move back towards USD1.4700. Stops were then hit on the break below, with a brief push down to USD1.4683 mid-morning then running into demand from an Asian sovereign. Bounce was capped at USD1.4710, with the rate then settling around USD1.4700 into the Asian afternoon.

Pound  fell to a one-week low against the euro and erased early gains on the US dollar after an unexpected fall in UK manufacturing output raised doubts about the British economy’s recovery prospects. The dramatic fall in UK industrial production followed a mixed bag of economic data in the past week, and raised the possibility that the economy may not return even to slight growth later in the year.

The Australian dollar was modestly higher in late Asian trade Wednesday as the unit bumped against firm technical resistance in an otherwise concerted push toward fresh 14-month highs, driven by the investor chase for yield. The Reserve Bank of Australia’s surprise decision to raise the official cash rate a quarter of a percentage point to 3.25% this week has helped set the Aussie apart from its major counterparts as investors now focus on the significant yield advantage offered by the commodities currency.

Market expectation

The dollar is narrowly mixed against major rivals such as the euro and U.K. pound on Wednesday after its losses on Tuesday.

For EURUSD Traders said short-term players have been keen to cash in positions ahead of ECB and BoE announcements. Bids still seen placed into USD1.4680 with stops below, ahead of further demand in the USD1.4660 area. Orders above said to be mixed, with stops in the USD1.4730/40 region and offers at USD1.4750. Meanwhile traders note large euro zone bond redemptions and coupon payments for Friday, said to be in the region of E18bn, possibly having a capping effect.

Traders said such dollar buying won’t last long and the dollar may resume falling, noting that the currency could decline toward JPY87 in the short-term. Against the dollar, the euro may rise to USD1.48, they said.

Japanese exporters want to sell the dollar above the JPY90-mark, which also is helping make the U.S. unit top-heavy, dealers said.

European stocks are expected to open lower Wednesday, with some near-term consolidation of the recent gains likely following a strong performance in the previous session.

Movers & Shakers:

Important levels:

Source: Dukascopy