European Market Review: What to Expect

by: TradingHelpDesk

Previous session overview
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.

But market participants said the yen, considered one of the safest currencies to buy in times of economic turmoil, may decline ahead on growing expectations of a global economy recovery.

The U.S. dollar stood at JPY97.11, compared to JPY97.48 in New York late Friday, when it surged almost JPY2.5 to briefly mark a two-month high of JPY97.79 on better-than-expected U.S. jobs data.

The euro also declined to JPY138.03, well below the more-than two-month high it hit 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 EURUSD to break out of a tight range and down roughly 200 points.

The British pound fell on the back of the stronger U.S. jobs report. The sterling started to weaken 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.

Market expectation
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 yen may face downward pressure in the near term due to mounting expectations for a global economic pickup, dealers said. The dollar may climb to JPY98.00, while the euro may rise to JPY140.00, they added.

Looking forward, players' 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 good sales on Thursday, and the consumer price index and industrial production, all for July.