Daily Forex Overview

Previous session overview

The dollar and euro rose against the yen in Asia Monday as gains in Asian shares bolstered investors' risk appetite and prompted increased buying of risk-sensitive units.

The U.S. dollar strengthened against major currencies Monday, rebounding from a string of recent declines after comments by Federal Reserve Chairman Ben Bernanke that the economy was leveling out.

The yen will likely weaken further if those share markets rise, as the Japanese currency's safe-haven status means it is unpopular when investors are seeking higher returns.

Euro advanced against the greenback on Friday as the better-than-expected data out of Europe added more credence to the views that the region is on the path to recovery and the pace of recovery may be more quickly than previously estimated. An index of the German services industry rose to 54.1 in August, from 48.1 in the prior month. Euro rose from USD1.4209 to a two-week high of USD1.4377 against the dollar as the upbeat U.S. housing data and Bernanke's comments improved risk appetite, however, profit-taking pushed the single currency to around USD1.4275/80 before rebounding on the back of the strength in U.S.

The British pound stormed higher, benefiting from positive news elsewhere in the world. The sterling took a beating earlier this week after Bank of England minutes revealed some policymakers had wanted to increase quantitative easing as early as this month.

A desire to buy riskier assets swept through Asia's trading session Monday, sending the Australian dollar sharply higher and bond futures lower across the yield curve, with similar momentum expected in the offshore session. Sparking the swing in appetite were better-than-expected U.S. housing data and remarks by Federal Reserve Chairman Ben Bernanke that the outlook for the world's largest economy is improving.

Market expectation

Currency dealers will keep paying attention to equity markets in Europe and the U.S. later in the day in the absence of other significant trading cues such as economic data.

Pound currently pulled lower by euro-dollar's retreat. The rate easing toward reported support at USD1.6450. A break here may open a deeper pullback toward USD1.6410/00. Move seen as euro-sterling holds tight around stg0.8690.

EURUSD grinds its way down to USD1.4306, but reported demand place toward USD1.4300 so able to cushion the early pressure. Stops suggested on a break of USD1.4290, which if triggered to expose Friday's NY pullback lows at USD1.4276 (seen after rate rallied to highs of USD1.4377). A break here may expose USD1.4250. Resistance remains at USD1.4350/60, a break to open a move back toward Friday's rally highs at USD1.4377, with offers noted from here through to USD1.4400. USD1.3950/1.4450 structure remains in play and expected to draw protective action if either side is threatened.

European stocks are expected to open sharply higher Monday, gaining momentum from positive U.S. housing data last week, a bright start in Asia and a surge in commodities.

The dollar and euro may rise against the yen for the next few days, but since investors are reacting to volatile share markets, any short-term moves are unlikely to turn into a long-lasting trend, dealers said.

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