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Dukascopy Market Review, US Session, 14th October

Previous session overview
The dollar stayed near 14-month lows on Wednesday after U.S. retail sales topped estimates, adding to confidence stemming from better-than-expected earnings from major companies and good economic data overseas.

The dollar is lower but above its weakest levels of the day against most widely-traded currencies early Wednesday, as global risk appetites have been further strengthened by positive corporate earnings reports and economic data.

Recent upside earnings surprises from the likes of Intel Corp. (NASDAQ:INTC) and J.P. Morgan Chase (NYSE:JPM) gave a significant boost to global risk sentiment overnight, leading to extensions of rallies for many equity markets as well as further advances for commodities like oil and gold.

The positive mood was helped by news from China that its exports hadn't declined as much as the market had anticipated. Instead of falling 21% in the year to September, they were down by only 15.2%, a big improvement on the 23.4% fall registered in August.

The Shanghai Composite Index reflected this with a 1.2% rally on the day.

U.S. data was also guardedly positive, as September retail sales declined less than feared with a 1.5% monthly contraction, assisted by generally upbeat results outside of the auto sector.

All this has served to accentuate pressure on the dollar, as global capital idled during previous months of financial crisis continues to flow toward higher-yielding and riskier assets.

The euro traded at USD1.4884 versus the dollar, up from USD1.4851 late Tuesday. Earlier, the euro pressed above USD1.49 for the first time in more than a year.

Market expectation
EURUSD with stocks set to open in solid positive territory; risk appetite is picking up - euro presses back over USD1.4900, with eyes on a retest of the o/n highs near USD1.4020. Mix of offers in the USD1.4905/20. Barrier said to be in place at USD1.4950, with offers ahead and stops over USD1.4955/60.

EURJPY pullback from US highs at JPY133.75 extending under JPY133.40, with traders seeing light bids now in the JPY133.20/15 area, more into JPY133.00. Topside remains in focus after the break back into the Ichimoku Cloud this week, the top of which is seen as key resistance at JPY133.95.

USDJPY dragged lower by a combination of overall dollar weakness as well as light talk of central bank selling. Traders remind that with Asian central banks intervening regularly to prevent their currencies from rising too quickly vs the dollar, these CBS in many cases are choosing to then leg the position by selling USDJPY. This allows them to increase their yen reserves (larger trading partner) while they also increase their overall reserves. Traders also note frustration that USDJPY could not vault JPY90 and stalled at JPY89.90 earlier.

Traders said, the weakness in the Greenback continues to press into tech support and new oversold territory. A correction is sorely needed and could happen at any time; with US data due today and into the end of the week there is potential for data to be seen as negative for equities. Should equities and commodities pullback the shorts could run for the exits en masse creating a sharp rally in the USD. Traders said if the bears decide to take a break and cover it will be a drop in Gold that is the precipitating event.

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