Daily Forex Overview

Previous session overview

The dollar and euro extended their falls against the yen in Asia Wednesday as weaker regional share markets prompted investors to buy the safe-haven Japanese currency.

Traders, however, expect any further falls later in the global day to be limited ahead of a U.S. Federal Reserve statement.

Following U.S. stocks' retreat overnight, Asian equity markets slumped, with Japan's benchmark Nikkei 225 Stock Average down 1.4% and the Shanghai Composite off 2.4% in early afternoon trading.

That prompted many short-term-focused players to seek safety in the yen, dealers said. At 0450 GMT, the dollar lost about half a yen, standing at JPY95.44 compared with JPY95.93 late Tuesday in New York.

Euro rose to an intra-day high of USD1.4186 against the dollar in late European afternoon, however, price then dipped briefly to USD1.4110 on the back of the declines in U.S. and European stock markets. German CPI decreased by 0.5% y/y in July, its first annual drop since the index was introduced.

The British pound traded near this week's low at USD1.6431 against the dollar on Tuesday as investors expected that BoE Governor Mervyn King would highlight the downside risks to the U.K. economy in the inflation report due out on Wednesday.

Rising risk aversion and a stronger U.S. dollar toppled the Australian dollar in Asia trading Wednesday, while bond futures enjoyed strong gains in jittery atmospherics ahead of the Federal Reserve's monthly policy meeting later. Although the Fed isn't expected to alter interest rates, its outlook for the economy and whether it intends to extend its USD300 billion quantitative easing program will be of crucial importance for direction in currency and bond markets.

Market expectation

Traders said the three major currencies would likely settle into narrow ranges ahead of the end of the Federal Open Market Committee monetary policy meeting later. Against the yen, the dollar will likely stick to a JPY95.30-JPY95.80 range, as players avoid major bets, said analysts.

Most players expect the FOMC to hold interest rates at their ultra-low 0.00-0.25% level. Many also believe the committee will decide not to extend an unconventional program to buy Treasuries past its scheduled expiration next month.

Traders note a suggestion that the BOK was in selling dollars to control the won's depreciation, which could prompt some sales of euro-dollar, for account balancing purposes, from this party into Europe. Stops noted on a break of USD1.4100. Further demand USD1.4085/80 ahead of USD1.4065/60, with stronger interest noted between USD1.4010/00. Resistance noted at USD1.4150, more between USD1.4165/70 ahead of USD1.4180/85. Markets expected to remain subdued ahead of tonight's FOMC announcement.

For pound break and clear below USD1.6430 to open a deeper corrective pullback toward USD1.6405/00 ahead of USD1.6370/60. Resistance USD1.6505/15, USD1.6530/40 with stops placed on a break of USD1.6550. Attention on UK unemployment data at 0830GMT, with main focus turned to the BOE Quarterly Inflation Report at 0930GMT. Sterling remains soft on expectations of a further downgrading in growth forecasts.

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