Currency Markets – Asian Trading Overnight

The dollar and euro extended their falls against the yen in Asia Wednesday as weaker regional share markets prompted investors to buy the safe haven Japanese currency. However, currency traders expect any further falls later in the trading day to be limited ahead of a U.S. Federal Reserve statement. Following U.S. stocks’ retreat overnight, Asian equity markets slumped, with Japan’s benchmark Nikkei 225 Stock Average down 1.4% and the Shanghai Composite off 2.4% in early afternoon trading. This prompted many short term focused traders to seek safety in the Japanese yen. At 0450 GMT, the dollar lost around half a yen, standing at JPY95.44 compared with JPY95.93 late Tuesday in New York.

The Euro rose to an intra day high of USD1.4186 against the dollar in late European afternoon, however, the currency pair then dipped briefly to USD1.4110 on the back of the declines in U.S. and European stock markets. German CPI decreased by 0.5% y/y in July, its first annual drop since the index was introduced. The British pound traded near this week’s low at USD1.6431 against the dollar on Tuesday as investors expect that BoE Governor Mervyn King will highlight the downside risks to the U.K. economy in the inflation report due out on Wednesday.

Rising risk aversion and a stronger U.S. dollar toppled the Australian dollar in Asia trading Wednesday, while bond futures enjoyed strong gains in jittery atmospherics ahead of the Federal Reserve’s monthly policy meeting later. Although the Fed isn’t expected to alter interest rates, its outlook for the economy and whether it intends to extend its USD300 billion quantitative easing program will be of crucial importance for direction in both the currency and bond markets.

Currency Market Outlook

Currency traders expect the three major currencies are likely settle into narrow ranges ahead of the end of the Federal Open Market Committee monetary policy meeting later. Against the yen, the dollar is likely to stick to a JPY95.30-JPY95.80 range, as players avoid major bets. Most traders expect the FOMC to hold interest rates at their ultra low 0.00 0.25% level. Many also believe the committee will decide not to extend an unconventional program to buy Treasuries past their scheduled expiration next month. Traders have also noted a suggestion that the BOK was selling dollars to control the won’s depreciation, which could prompt some sales of the euro dollar, for account balancing purposes. Stops noted on a break of USD1.4100. Further demand is seen at USD1.4085/80 ahead of USD1.4065/60, with stronger interest noted between USD1.4010/00. Resistance is noted at USD1.4150, with more between USD1.4165/70 ahead of USD1.4180/85. Currency markets expected to remain subdued ahead of tonight’s FOMC announcement.

For the UK pound, a break and clear below USD1.6430 could open a deeper corrective pullback toward USD1.6405/00 ahead of USD1.6370/60. Resistance is seen at USD1.6505/15, USD1.6530/40 with stops placed on a break of USD1.6550. Attention is now on fundamental news, with the UK unemployment data due at 0830GMT, followed by the BOE Quarterly Inflation Report at 0930GMT. Sterling remains soft on expectations of a further downgrading in growth forecasts.

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Currency Markets – Overnight Trading Asia

The dollar and euro fell against the yen in Asia Tuesday as weak Chinese stock prices stifled players’ risk appetite and prompted them to buy the safe haven Japanese currency once again. Both currencies may retrace further if European and U.S. stock prices fall later in the global day, but their fall is likely to be limited ahead of the two day Federal Open Market Committee meeting. The US dollar fell to JPY96.65 from JPY97.11 in New York Monday, and is expected to decline further if European and the U.S. shares also show poor performance later in the day with the euro also declining to JPY136.61 from JPY137.32. The Euro pivoted around the USD1.4200 price level for most of the day until the bears won out and forced the pair back to USD1.4100 . Euro yen selling capped the rebound as US stocks started to slip and sentiment shifted to profit taking. Many analysts are pulling there long euro dollar predictions given the price action over the last two days.

The British pound fell against the dollar on Monday as stock markets snapped two day gains and also due to the fallout from the Bank of England’s decision last week to expand asset purchases, which sparked concerns that the worst of the U.K economy has not yet passed. A firmer U.S. dollar and weaker than expected Chinese data sent the Australian dollar to two week lows in Asia Tuesday, with further losses expected offshore, while shorter dated bond futures nudged higher. Weighing on the local currency in particular is a fundamental shift in outlook for the U.S. economy as traders bet on an imminent end to the recession there, which in turn is driving a renewed bid tone behind the U.S. dollar.

Currency Market Outlook

A revival of caution ahead of the Fed’s meeting is tipping the dollar, euro and pound lower against the yen, but the dollar is still viewed as a better bet thereafter. Downside moves against the yen are likely be limited for now as currency traders are unwilling to make aggressive bets ahead of the release of the statement from the FOMC Wednesday. Analysts are suggesting that this week’s meeting of the Federal Open Market Committee will be crucial for near term bond and currency market direction, as any hawkish tones from the Fed would boost the US dollar and weigh on the Australian dollar.

The euro vs dollar is reversing lower once again amid talk of stops under USD1.4100, though slippage was contained at USD1.4124, with subsequent trades then contained under USD1.4150 into the Asian afternoon. A break of USD1.4100 may expose light bids at USD1.4065/60, said to be stronger at USD1.4010/00. Offers are seen back at USD1.4150/60 in small, more significant into USD1.4200/10.

The dollar vs yen has moved lower, last at JPY96.67 vs JPY97.11 in New York Monday, mostly due to players’ position adjustment ahead of the 2-day FOMC meeting starting today. The  long term trend remains upward as players are somewhat less dovish on U.S. economy as recent jobs data turned out to be stronger than expected, say dealers. For now, the important psychological  technical mark at JPY98.50 remains important, as moving averages on the daily charts suggest this is the tipping point. In addition many options players have also placed sell orders there as well as exporters’ willingness to sell US dollar holdings there to settle accounts. If this level is breached, the dollar vs yen may rise toward the 100 price handle once again.

You can keep up to date with all the latest fundamental news on the economic calendar, latest currency news and live currency charts by simply following the links.  I have also included details on an excellent ECN broker.