Fears that another US stock market decline might follow after a nearly 5% drop in Chinese shares were not realized, and the US dollar reversed most of its overnight gains as investors returned to a risk embrace. JPY-crosses, also known as carry trades, had been sold off heavily overnight, and they also rebounded sharply as stocks reversed initial losses and went on to post a 0.7% gain. There were few data reports to drive the price action, but weekly oil inventories saw a much sharper draw down than expected (-8.4 mio bbls vs. forecast of +1.2 mio bbls), which led to about a $4 jump in oil prices, adding to US dollar selling pressure.
Much of the movements in FX appeared to be driven by short-term positioning, with USD longs getting stopped out as key technical levels were breached. EUR/USD recovered from around 1.4100 in early NY trading to a high near 1.4270, before surrendering some gains and closing around 1.4225. Sterling reversed all of its earlier losses against the USD following the more dovish BOE minutes, rebounding from about 1.6380 to a high near 1.6560 before settling lower at 1.6530. USD/JPY remained trapped in narrow range around recent lows, trading between roughly 93.70 and 94.20 for most of the day. Gold prices gained ground on USD weakness and spot gold picked up about $4 to finish near $943/oz.
The only event scheduled during the Asia session is a speech by the BOJ's Mizuno, so stock market performance will likely continue to provide direction to currencies.
Upcoming Economic Data Releases (Asia Session) prior expected
- 8/20/2009 1:30 JN BOJ Board Member Mizuno to Speak in Okayama City
