Daily Forex Overview

Previous session overview

The dollar and euro declined against the yen in Asia Tuesday as slumping regional share markets prompted short-term speculators to sell the units for the safe-haven Japanese currency.

Dealers said if the Asian stock falls lead to slides later in European and U.S. equities, the yen would likely stay on top for the day.

Among Asian indexes, China's benchmark Shanghai Composite was again in the spotlight. The index fell, trading down 3.35% in early afternoon trade, prompting short-term players to cut bets on the euro and dollar against the yen.

The euro dollar pair declined slightly recording a low of USD1.4275 and a high of USD1.4308, having the union currency trading around USD1.4295. The pair is taking the same downtrend that started yesterday, despite the industrial new orders signaled recovery in the union's industrial sector.

The Pound was weaker than most losing ground against 14 of the most actively traded currencies yesterday. EURGBP was a source of weakness as the pair pushed above 0.8700. Cable fell from above USD1.6500 to test USD1.6400 where some buyers were found.

The Australian dollar lost ground in Asia Tuesday on weaker Shanghai listed equities while bond futures enjoyed a firm bid tone across the curve, though on light volumes.

Market expectation

European stocks are expected to open in the red Tuesday, following subdued sessions in the U.S. and Asia.

EURUSD holds on the initial attempt, though recovery so far remains shallow as rate currently trades around USD1.4276. A break below USD1.4270 may open a deeper move toward USD1.4250. Below here and rate can ease on toward USD1.4220/00 area. Resistance remains in place toward USD1.4310, a break above to expose stops, which if triggered targets USD1.4345/60.

Investors are watching Chinese equities as a gauge of the health of the overall Chinese economy, which analysts say is essential to any global economic recovery. The Shanghai Composite has retreated nearly 17% from its recent high on August 4, raising concerns any Chinese slowdown could hinder nascent growth elsewhere.

Dealers said the yen may also be getting a slight boost after the cost of three-month interbank funding in Japan, as measured by the London interbank offered rate, edged above that in the U.S. for the first time in more than 16 years Monday.

The three-month yen London interbank offered rate was 0.2 basis point above the dollar rate, which stood at 0.38688% Monday. But traders said any bump is likely to be limited as longer-term U.S. rates remain higher.

Australian analysts said a domestic data vacuum means both bonds and the currency will look to offshore stock markets and economic news for fresh guidance.

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