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Trading Currency - A Summary

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Currency Markets − Morning Report

Fri, Jul 3 2009, 08:10 GMT
by Anna Coulling

Master The Markets

Currency Markets - Yesterday & Overnight

Across the foreign exchange markets, the weaker than expected NFP payrolls data prompted a surge in risk aversion, with the U.S. dollar rising against the euro but falling against the Japanese yen, however, some of these moves have now been reversed in Asian and early European trading. The US dollar rose back slightly against the yen in Asia Friday after tumbling yesterday on weak U.S. jobs data, boosted by demand from Japanese players investing in overseas assets.  However many traders feel that the U.S. currency's recovery may be temporary, and if it begins falling again later in the session, a thin market due to a U.S. holiday could exaggerate any move and add volatility and uncertainty into the markets, which is often the case when markets trade on low volumes.

The euro ended Thursday down against most of the majors, gaining only against the commodity dollars, after the European Central Bank left rates unchanged at 1.00 percent, as expected, for the second straight month. ECB President Jean-Claude Trichet said that "current rates are appropriate" and that recovery is expected in mid-2010, but at the same time, he said later on in an interview that rates may not be at their "lowest" level, suggesting that the ECB feels that they may have room to reduce rates further later in the year.

The British pound was lower against the dollar after dovish comments from a Bank of England policymaker and continued concerns about the economy. BoE policymaker Tim Besley said it was too early to judge when the central bank will need to start withdrawing the massive stimulus it has delivered. Data showed that an index on purchasing managers' survey on UK construction activity fell to 44.5 in June.

The Australian dollar was weaker late Friday, although above its lowest level, after the weaker than expected U.S. jobs data eroded much of the positive sentiment that has supported the high-yielding currency.

Currency Markets - European Trading Session

European stocks are expected to open marginally higher Friday, as investors chase bargains after Thursday's hefty losses, however, the U.S. holiday is likely to limit activity. For the euro vs pound support is noted at 0.8525/20, though not disregarding the overnight low at 0.8527, a break below 0.8520 could open a deeper move toward 0.8500 later today. Resistance is seen placed at 0.8545/50 ahead of 0.8565/70 and 0.8580.

For the UK Pound,  offers are seen placed between USD1.6430/35 (USD1.6433 50% USD1.6545/1.6323), a break here could open a move toward USD1.6460 (Europe high Thursday/61.8%) ahead of USD1.6490/00. Support remains toward USD1.6320, a break to open a deeper move toward USD1.6280, with stops noted through USD1.6275/70.

Trading in the euro vs dollar will be thin, due to the US market holiday, and there is talk that a large Asian bid is seen placed around the USD1.3990 level. Offers seen placed toward USD1.4030 USD1.4027 recovery high NY/USD1.4032 38.2% USD1.4202/1.3927) with stops above USD1.4035, which if triggered to open a move toward USD1.4080/85 ahead of USD1.4100. Support is seen placed around USD1.3990, and a break below could open a deeper move toward USD1.3960/50 ahead of USD1.3927 and stronger area between USD1.3920/00.

If U.S. economic worries and higher risk aversion cause the dollar to reverse course against the yen later in the day, a key point to watch will be the JPY95.00 level, according to traders who suggest that "there are automated stop loss selling orders placed there, and if a dollar fall triggers those, the currency could quickly hit JPY94.50 in a thin market" - we will see later today!

Despite the fall in the Australian dollar, analysts say they don't expect it to move outside its recent trading range unless there is further weak fundamental news today, either in the U.S. or locally.

Published on  Fri, Jul 3 2009, 08:11 GMT