Dukascopy Afternoon Forex Overview – Oct 9 2009

Previous session overview

The dollar was higher early Friday in New York, extending gains made overnight on the back of comments by Federal Reserve Chairman Ben Bernanke on the eventual tightening of U.S. monetary policy.

A better-than-expected report on the U.S. trade balance in August released early Friday also gave the dollar support.

The U.S. trade deficit unexpectedly narrowed for the first time in four months, with exports rising to their highest level of the year and imports easing despite higher oil prices. The weak dollar aided the narrowing in the trade balance.

Bernanke said in a Thursday evening speech the central bank would be ready to tighten monetary policy and shrink its bloated balance sheet once the economy improves.

Loose monetary policy and ultra-low interest rates encourage investors to use the low-yielding dollar to fund bets in riskier assets, such as commodity-backed currencies like the Australian dollar.

The dollar lost ground Thursday after a perfect storm of events, including better-than-expected U.S. corporate earnings, a no-surprises day of central bank meetings and rising equities teamed to heighten risk appetite.

Market expectation

Despite the two-way nature of overnight action the USD is holding on to slight gains in most pairs as the Bernanke comments showed clearer that the Fed is going to respond to support the USD when needed; the oversold condition needs to be corrected and the bears have their warning shot this morning. Should the USD fall back and press again toward new lows traders think the buyers will step in quickly. In traders view, the late sellers are the only ones pressing the Greenback lower at this point and the relief rally could happen at any time.

Pound is under renewed pressure in US dealing as bids in the USD1.5935/30 area are cleaned out, earlier noted demand into USD1.5900 now looking vulnerable to a test. Stronger bids said to come in at USD1.5860 with stops below.

EURJPY edging back towards the JPY131.50 area after flirting with a JPY130 handle into the US session as dollar-yen dropped below JPY89.00. Technical traders are encouraged after another strong bounce back from the 200-day moving average this week; with Ichimoku resistance now back on the radar at JPY132.28. Traders had suggested large German bond redemption for today may have had a negative impact, though as yet slippage is fairly well contained. Expiry interest seen higher up at JPY133.00 for the NY cut.

The Australian dollar is trading near the high for this year uptrend against the dollar, which is USD0.9095 recorded on Thu. Decisive trading above USD0.9103 would point the Aussie up to a wide band of weekly resistance between USD0.9166 and USD0.9292. If trades are stopped below USD0.9103 look for a dip to test USD0.8913. In that case take profit at USD0.9039 and at USD0.8976.

Movers & Shakers:

Important levels:

Source: Dukascopy