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Dukascopy Market Review, European Session, 27th October

 Previous session overview

The dollar rose to a fresh five-week high against the yen before losing some of its gains in Asia on Tuesday, as long-term U.S. interest rates remained on an uptrend and a downturn in share prices raised demand for the safe-haven U.S. currency.

The dollar climbed during morning trade as high as JPY92.33, the highest since Sept. 21. But the greenback later trimmed some of its gains due to selling by Japanese exporters and profit-taking by some short-term players, dealers said.

Yesterday, euro rose to another fresh 14-month high of USD1.5064 against the dollar on report of Chinese Central Bank would increase its holdings of euro and yen in its currency reserves. Price then retreated after the researcher Zhou Hai said the comments on China FX were his own views. Huge selling pressure emerged when U.S. stocks fell, pushing euro to as low as USD1.4845 in late New York session as investors locked in recent gains and speculated that it would be hard for euro to sustain above USD1.5000 level versus the greenback.

The Pound managed to seek out small gains as the market recovered both on the crosses and the major during the day. Speculation the sell off on Friday was overdone and that the GDP numbers would be revised higher helped sustain gains.

The Australian dollar followed equity markets lower in Asia on Tuesday in thin trade as currency and bond traders squared up positions ahead of crucial inflation numbers. At 0455 GMT, the Australian dollar was trading at USD0.9186, down from USD0.9248 late Monday. Against the Japanese yen, it was trading at JPY84.63, down from JPY84.835.

Market expectation

With the gap between U.S. and Japanese interest rate being one significant mover of currencies, market participants are focused on a series of U.S. government debt auctions this week totaling USD123 billion in value, including a sale of USD44 billion two-year notes later Tuesday. The yield on benchmark 10-year U.S. Treasurys last stood at 3.543%, a tad shy of the psychologically important 3.6% mark.

Market participants will also keep a close eye on U.S. Case-Shiller home price index for August and conference board consumer confidence index for October due later in the global day to gauge the strength of the U.S. economic recovery and the possibility of monetary tightening.

For EURUSD offers seen placed toward USD1.4930 (USD1.4927 recovery high/USD1.4929 38.2% USD1.5064/1.4845), with offers suggested to stretch to USD1.4940. Traders have suggested that rate needs a break above this latter level to remove the current underlying corrective tone. Bids seen placed between USD1.4875/65 ahead of USD1.4845/40, with traders aware of sovereign interest on dips. Stops reported below USD1.4810.

European stocks are expected to open largely flat Tuesday, as a slight tick up in U.S. stock futures lends a helping hand ahead of some high-profile earnings reports, despite overnight weakness across U.S. and Asian markets.

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