Currency Markets – Friday and Overnight Asia
The dollar and euro gave up some ground to the yen in Asia Monday, as investors took profits following a sharp rise in those currencies against the Japanese unit Friday, while Japanese exporters joined in the selling on a regular settlement day. However the Japanese yen, considered one of the safest currencies to buy in times of economic turmoil, may now start to decline on growing expectations of a global economic recovery. The U.S. dollar stood at JPY97.11, compared to JPY97.48 in New York late Friday, when it surged almost 2.5 yen to briefly mark a two month high of JPY97.79 on better than expected Non Farm Payroll data. The euro also declined to JPY138.03, well below the high of Friday in New York at JPY138.72, and lower than its JPY138.20 level late in that session. The euro was one of the weakest major currencies on Friday, but it has little to do with European data. Instead, the release of US non-farm payrolls triggered a surge in the US dollar, which led the euro vs dollar to break out of a tight range and fall roughly 200 pips in the trading session.
The British pound fell on the back of the stronger U.S. jobs report. The sterling move lower started earlier in the week after the Bank of England left rates at a record low 0.5 percent and unexpectedly increased its asset purchase plan, indicating that financial conditions remain weak. The Australian dollar traded sideways in Asia Monday as the U.S. dollar broadly held its ground, while shorter dated bond futures fell to fresh lows on increasing expectations for monetary policy tightening in coming months.
Currency Market Outlook Monday
The euro, pound and yen are all higher against the dollar Monday due to demand from Japanese exporters, yet those moves seem tentative and could reverse later. Meanwhile, the pound is seeing some buying against the euro. European stock markets are expected to open lower Monday, as investors bank gains as the second quarter earnings season draws to a close and after the release of the key employment data in the U.S. Friday. The pound vs dollar posted lows at USD1.6653 before recovering back, edging to USD1.6692 before meeting further resistance. The exchange rate currently trades around USD1.6665. Bids remain in place on the approach to USD1.6650, a break below USD1.6640/35 could open a deeper move toward USD1.6610/00. Resistance is seen placed at USD1.6700/05 ahead of USD1.6720. A break here may open a move on toward USD1.6750.
Euro vs dollar bids are seen placed toward USD1.4180 (USD1.4182 76.4% USD1.4172/1.4216), a break below here could open a retest on the overnight low. Through here and stronger demand interest is reported in place ahead of USD1.4150 (USD1.4154 NY low Friday). Stops noted on a break of this level, which if triggered may open a deeper move toward USD1.4130/20 ahead of USD1.4100. Resistance is now seen placed toward USD1.4220, a break above will allow for any recovery to extend toward USD1.4230/40 ahead of USD1.4270/80.
The yen may face downward pressure in the near term due to mounting expectations for a global economic pickup, according to many currency analysts. The dollar may climb to JPY98.00, while the euro may rise to JPY140.00. Looking forward, currency traders attention will be focused on a planned two day Federal Open Market Committee meeting starting Tuesday. In addition, they will be watching U.S. data including retail and goods sales on Thursday, and the consumer price index and industrial production, all for July.
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