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Dukascopy Market Review, European Session, 19th October

Previous session overview
The euro fell against the yen and dollar in Asia Monday, as players sold the common currency to lock in profits amid speculation European authorities may face increasing pressure to rein in the unit's recent strength.

Some short-term players in Asia were concerned that euro-zone finance ministers convening at a regular meeting later in the day in Luxembourg could fire warning shots over euro strength, dealers said.
That could ramp up pressure on the European Central Bank to consider steps to curb any further rises in the currency, they said.

After the euro surged Friday to its highest levels in 14-months against the dollar and 2-months against the yen, the strength of the common currency, which hurts euro-zone exporters, is now facing increased scrutiny.

At 0450 GMT, the euro traded at JPY135.08 compared to JPY135.30 late Friday in New York. Selling by Japanese exporters also weighed on the common currency against its Japanese rival, dealers said.

The euro fell against the US dollar as risk tolerance dropped on data showing US consumer sentiment eased in October and prompted safe-haven buying. The single currency should continue to see resistance on the psychologically key USD1.50 level.

Pound hit a three-week high against the US dollar, extending the previous day's dramatic gains as traders who had bet on further falls in the battered pound rushed to cover their positions. The pound extended gains a day after the market took talk that Qatar's sovereign wealth fund was planning a renewed offer for British supermarket chain J Sainsbury.

The Australian dollar ended the Asian session weaker late Monday amid jitters about imminent U.S. corporate results and as market participants pared back expectations about aggressive interest rate hikes.

Market expectation
The euro is lower against the dollar, pound and yen on Monday, as markets take a pause.

The U.K. pound continued to strengthen against the dollar, as investors who had bet on the British currency's continued decline are now being squeezed out of the market as new investors flood into the pair, analysts said. But the rally of the much-beleaguered U.K. pound could run out of steam this week, stalling the sterling within a new trading range around USD1.63 to USD1.64, analysts said.

USDJPY now hovering near level from late Friday in New York, but could build off its rises from last week if players continue to trim bets on JPY, said analysts.

For the rest of the week, players will be watching for any further clues on U.S. monetary policy from a series of speeches by U.S. Federal Reserve officials, dealers said. Chief among them, Fed Chairman Ben Bernanke is slated to speak in San Francisco Monday and at the Boston Fed conference Friday.

Any hints that interest rate hikes may come sooner than expected could in the longer-term boost the dollar's appeal against presently higher-yielding rivals such as the euro and Australian dollar, dealers said.

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