Currency Market Report
The US dollar declined against the yen and euro in Asia Thursday as players sold the currency to lock in profits after its overnight rise. Currency traders and investors also sold the dollar in reaction to news that both Russia and Brazil are planning to reduce their U.S. Treasury holdings in favor of new International Monetary Fund securities according to many market analysts. Japanese currency speculators and exporters sold the US dollar for the yen, while overseas funds sold it for the euro, in overnight trading. A rise in long-term U.S. interest rates lifted the dollar overnight, setting it up for a slight pullback during Asian hours. Dealers said there were no prominent trading cues, though Japanese exporters’ selling the US dollar around the 98 price point were beginning to weigh heavily on the currency pair. Some traders have also suggested that the continued rise in oil prices is having a negative impact on the US dollar, with the price of Nymex crude futures rising above $72 per barrel for the first time since October last year.
The euro managed modest further gains during the early London trading session, reaching 1.4145, and appearing to shrug off an FT story about German banks, but spent the rest of the session declining to 1.3915 on the broad based rally in the dollar. Fitch warned of a rising risk of devaluation in Latvia, whilst Sweden’s FSA confirmed that its banks could weather the Baltic credit risk.
The UK pound extended its gains against the dollar, rising nearly 1%, as Russia’s comments weighed on the USD. Sterling’s sharp gains against the dollar also helped it hit its highest level in 2009 versus the euro as it extended earlier gains, reflecting the belief that the economy is over the worst of the recession.
The Aussie dollar climbed strongly Thursday as better than expected employment data for May prompted investors to further lower expectations of a near-term interest rate cut.
Currency Market Outlook
Both the euro and the UK pound are gaining against the US dollar early Thursday, but dealers are cautioning that there may be a period of consolidation which is certainly suggested in the euro dollar daily chart, which appears to have settled into a narrow trading range. Offers are seen placed toward the overnight high at 1.4063, and a break above here could open a move toward 1.4090/00. Stops are noted through 1.4110, which if triggered could open a move toward1.4130 ahead of 1.4140/50. Support is seen at 1.4025/20, and stronger towards 1.4000 with stops placed on a break of 1.3990.
Wednesday’s UK manufacturing data which was seen as supporting the view that the K economy is stabilizing at a quicker pace than the euro zone, provided underlying support for the pound. Bids remain in place toward 1.6380, with more towards 1.6350/40, with stops below. Resistance is seen at 1.6420/25 ahead of 1.6440/50 and Wednesday’s high at 1.6475.
Market analysts are now waiting for the U.S. May retail and food sales, due at 1230 GMT, to gauge conditions in consumer demand. Economists surveyed have forecast a 0.5% rise. Some dealers said that weaker than expected figures could drag the US dollar lower.
European stocks are expected to open marginally higher Thursday, with oil and mining stocks again set to benefit from the surge in commodity prices, but doubts remain about the sustainability of this rally.
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