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Dukascopy Market Review, US Session, 29th October

Previous session overview
The dollar declined versus major rivals Thursday, stemming a string of gains in recent sessions, after a report showed the U.S. economy returned to growth in the third quarter, boosting stocks and reducing the appeal of the relative safety of the greenback.

A separate report showed first-time jobless claims dropped in the latest week.

Overshadowed by the GDP report, the Labor Department said separately that first-time claims for state unemployment benefits inched lower in the week ending Oct. 24, down 1,000 to 531,000. The consensus forecast of Wall Street economists was for claims to fall to 524,000.

The euro was also supported from earlier local data. The European Commission's economic sentiment indicator posted a bigger-than-expected October rise. The index for the 16-nation euro zone rose to 86.2 from 82.8 in September, compared to expectations for an increase to 84.5.

Both the yen and dollar have declined as traders borrow in the low-yielding currencies to buy higher-yielding assets, putting on so-called carry trades. The strategy is profitable as long as rates in the countries where the currencies are borrowed remain stable and low. The U.S. Federal Reserve has said it will keep its target lending rate near record lows for an extended period.

The Japanese yen, however, has been the most sensitive to risk aversion trading, falling when investors are more interested in riskier assets such as equities. Against the yen, the dollar rose to buy JPY91.34, from JPY90.80 on Wednesday.

Market expectation
EURUSD stops gunned above USD1.4820 area as risk trades extend on the rebound in US stocks and as the world feels alright again after better than expected US GDP data. Traders quick to note the sharp mood swings in markets from one day to the next, a sign of unease still, several say, and perhaps a reason why longer-term players continue to hug the sidelines.

The major millstone hanging around the economy is the weak labor market, said analysts. Jobless claims are still highly elevated. It does keep the overall outlook on the soft side, which could mute gains in the euro and other higher-yielding currencies.

Investors also may be cautious not to bulk up on risky positions ahead of next week's key interest rate-setting Federal Reserve meeting, said analysts.

Given the strong U.S. GDP reading, the Fed could tweak the language in the statement accompanying its decision on interest rates, which are not expected to change. Any hint that rates could increase sooner than expected would likely strengthen the dollar.

Besides the Fed, a host of central bank meetings are on next week's calendar, including the Bank of England and the European Central Bank.

For Pound technical traders note support at USD1.6540, pullback low after USD1.6580 traded as well as 23.6% retrace of USD1.6335/1.6605). Rate currently trades around USD1.6565. Resistance remains at USD1.6505, more between USD1.6620/30.

Dukascopy Currency Trading