Daily Forex Overview

Previous session overview

The euro fell against the dollar and the yen in Asia on Thursday, as European market participants unloaded their euro-holdings to adjust positions before a series of the euro-zone central bank policy-setting meetings.

The euro's decline was also the result of lackluster Asian share markets that prompted short-term traders to sell the risk-sensitive euro, dealers said. The pound also lost against the dollar and the yen for the same reasons.

Early in the Asian morning, European market participants continued to cut their high-yielding euro holdings, traders said.

The U.S. unit also lost against the yen due to selling of the euro for the yen, which involves sales of dollars for yen in the process. At 0450 GMT, the U.S. unit stood at JPY90.37, compared with JPY90.67 in New York late Wednesday.

The euro pushed higher with a survey released showing a bigger-than-expected expansion in the euro zone, but the single currency pared some of its gains after the Fitch ratings agency downgraded Ireland's sovereign rating to 'AA-' from 'AA+.' Analysts will look towards tomorrows European Central Bank announcement where it is expected that rates will remain unchanged at 0.5 percent.

The Pound opened Asia around session highs of USD1.6563 and came under early downside pressure from Tokyo sterling-yen sales, as risk positions were pared back as Asian equity markets suffered contagion from the late corrective pullback on Wall Street (DJIA did close up 30, but off best post FOMC react gains of 160). Rate was squeezed to session lows of USD1.6497, recovering to USD1.6530 ahead of the European open before coming under fresh sell pressure that eased the rate to lows of USD1.6467 (USD1.6469 38.2% USD1.6260/1.6598).

The Australian dollar was slightly higher late Thursday in Asia but well down from its day's highs as the market reacted to a sizable trade deficit in September and weakness in regional equity markets.

Market expectation

The Pound currently trades around USD1.6485. Underlying tone still said to remain buoyant with today's 1200GMT BOE announcement the main focus. Most expect the MPC to keep the bank rate at 0.50%, with adjustment in QE the main factor to be watched, especially any commentary suggesting Gilt buying is coming to an end. Most expect QE to be increased by between stg25bln-50bln, though some suggested we could see a pause. Support remains at USD1.6470/65, a break below to allow for a deeper pullback toward USD1.6450 ahead of USD1.6430 and USD1.6400/390. Resistance seen placed at USD1.6500, more at USD1.6520 ahead of USD1.6530/35-50.

Traders in Asia have mentioned that despite the downside pressure through their session, price action remains encouraging for the euro ahead of today's ECB announcement. Most expect no change in the rate or Trichet comments, expecting the December meeting to provide better clues for the timetable for exit strategies. Support noted on approach to USD1.4800 (USD1.4802 38.2% USD1.4626/1.4910-61.8% USD1.4735/1.4910). A break here may open a deeper move toward USD1.4780/70. Resistance seen placed at USD1.4855/65 ahead of USD1.4880/85 and USD1.4900/10.

European stock markets are expected to open lower Thursday, as a final hour selloff on Wall Street Wednesday dampened investors' spirits following the U.S. Federal Reserve's statement, which contained no surprises and left the markets in limbo.

Attention has now turned to the policy-rate setting meetings of the Bank of England, scheduled for 1200 GMT, and the European Central Bank at 1245 GMT. While the two central banks are expected to keep their policy rates unchanged, traders are focused on whether the BOE will announce an extension of its asset-purchase program.

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