Daily Forex Overview

Previous session overview

An unexpected rise in Japanese stocks in the morning session pushed the dollar up against the yen in Asia Tuesday, but dealers said the greenback may resume its decline as shares began to fall in the afternoon.

The dollar rose to as high as JPY95.03, from JPY94.44 in New York Monday, due to improved risk appetite as the benchmark Nikkei 225 Stock Average ended the morning session up 0.4% at 10,307.41.

The Euro started falling from the open and accelerated into Europe after breaking through USD1.4100. The Market found itself short going into New York and stabilized through a rally in EURJPY.

The Pound took a sharp tumble against the greenback. First, the UK released a weak housing prices report and in addition to the overnight risk aversion, the pound's is being punished for the Bank of England's recent statements and moves. The bank expanded its asset-purchase program, a signal the economy is still fragile, while also acknowledging that inflation will miss its target, limiting when the bank can raise rates. The pair broke a support line at its open around the USD1.65 area.

In a choppy Tuesday trading session, the Australian dollar managed to edge higher amidst further turbulence on regional equity markets, while shorter dated bond futures benefited from a renewed investor rush into safer asset classes.

Market expectation

The safe-haven yen is a little weaker as market players took a more sanguine view of the economic recovery than the pullback in stock markets was suggesting.

The U.S. currency may hit JPY93.50 if the U.S. housing starts survey due at 1230 GMT turns out to be weaker than expected and shows the nation's economic recovery will likely remain slow for now, some dealers said. The headline figure is expected to show a rise of 2.7% in July from June, according to economists.

Elsewhere, the euro rose to USD1.4105 from USD1.4085 in New York Monday due to buying by Middle Eastern investors and Japanese importers. But it may start falling soon, dealers said, as the euro is often weak when investors decrease their exposure to risk-sensitive assets.

European stocks are expected to open modestly higher overall Tuesday, although some nervousness remains as Asian equity markets trade in the red.

Pound stops above USD1.6400 targeted and triggered into early European trade on reported Russian demand, the rate lifting from around USD1.6365 to USD1.6410, pushing through earlier Asian highs at USD1.6393 (Monday European high at USD1.6398). Rate quickly drops back to USD1.6385 as profit take selling emerges after the pressured move to counter the triggered demand, along with reports of Mid East sales. Offers now seen placed around that failed level at USD1.6410, a break to open a move toward USD1.6435, with interest here said to extend toward USD1.6450.

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