Daily Forex Overview

Previous session overview

The yen rose sharply against the dollar and euro in Asia Friday reports that China may tighten its banking rules, potentially hurting fragile sentiment on China and spurring risk aversion in other markets.

The U.S. currency fell to a one-month low of JPY93.47 from JPY94.21 in New York late Thursday and the euro dropped to JPY132.90 from JPY134.29.

Global markets have been highly sensitive to developments in China as the world's third-biggest economy and export power is considered key to the global recovery. The yen tends to rise on safe-haven buying when investors flee risky assets.

The euro and Swiss franc closed Thursday just below yesterday's highs against the US dollar, but given the very tight trading ranges and low liquidity we've been seeing, there's no guarantee we'll see any sort of break overnight. There were no Euro-zone releases on hand, but the Swiss franc gained very briefly following the release of Swiss trade data, as the nation's trade surplus widened to SFr 2.35 billion from a revised SFr 1.5 billion.

The British pound tumbled further today after weak British government borrowing data, which fanned concern the country may have to sell more debt to boost up its finances, offsetting the impact of upbeat retail sales numbers, which rose 0.4 percent in July, twice as expected. Britain posted a record budget deficit in July, hurting the sterling.

The Australian dollar chased regional equity markets lower Friday as risk aversion was once again the theme of the session, allowing interest rate futures good support across the curve.

Market expectation

Japanese investors are selling the euro, U.K. pound and the dollar against the yen as Tokyo stocks decline.

The greenback may fall below JPY93.00 and the euro may hit JPY132.50 Friday if global share markets weaken, dealers said.

Because the euro is more sensitive to risk appetite than its major rivals are, dealers said it's likely to weaken further. For EUR bids remain in place toward USD1.4200 (Thursday low), with stops below, a break to open a deeper move toward USD1.4180/70. Further demand noted here with reports of CTA stops placed on a break below. Further downside stops suggested between USD1.4160/55 with next band of demand seen at USD1.4150/40. Resistance USD1.4170/80, with stops above, a break to open a move toward USD1.4300/10 with larger stops said to reside above.

After a roller coaster week, analysts don't expect an end to volatile and whippy price action anytime soon and said a thin domestic data calendar means the local currency and bond market remain at the beck and call of offshore sentiment.

The main piece of event risk that traders should be watching, though, will be Federal Reserve Chairman Ben Bernanke's 10:00 ET speech at the Jackson Hole Conference.

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