Forex Market Review (European Session) – Yen under pressure because of risk-on; pound catches breath after major up move

Forex Market Review (European Session) – Yen under pressure because of risk-on; pound catches breath after major up move

The yen remained under pressure during today’s trading as market participants were more optimistic on the global outlook. The pound retreated after climbing to its post-Brexit high versus the dollar due to some profit-taking.

Safe haven plays such as the yen and gold remained under substantial pressure today as equity markets around the world marched on to fresh highs and concerns about a possible escalation of the North Korean situation were calmed by recent developments. A speech by US President Donald Trump before the UN General Assembly is eagerly awaited for further clues on what the US policy toward North Korea is going to be, but for now it seems preference will be given to diplomatic means.

Dollar/yen was trading near the day’s highs near the end of the European session at 111.54.  This also represented an 8-week high for the dollar against the Japanese currency. The euro and the pound also took advantage of the yen’s weakness to clock significant gains as they traded at 133.20 and 151 yen per euro and pound respectively.

Euro/dollar stayed well within recent ranges at 1.1952, with traders possibly awaiting the outcome of the 2-day Fed meeting that ends on Wednesday before pushing the pair outside recent ranges. The Fed is almost certainly expected to begin paring down its balance sheet by no longer reinvesting all of the proceeds from the QE portfolio, but a December rate hike remains a 50-50 affair more or less.

The pound was still in focus after the previous week’s reassessment of probabilities about Bank of England rate hikes.  The pound gave back some of its gains to trade at 1.3556 against the dollar and at 0.8818 against the euro. Earlier in the session the euro fell below the 0.88 mark but managed to recover. Forex market participants were eagerly awaiting a speech by Mark Carney in Washington for perhaps some clarification of what the Bank of England was intending to do in its next few meetings.

The economic calendar was rather light today. Eurozone inflation for August was confirmed at 0.3% month-on-month and 1.5% year-on-year, which left the euro without particular guidance. In the US, the National Association of Home Builders (NAHB) index dropped to 64 in September from 67 in August, but the market did not pay much attention to the numbers. Looking ahead to Tuesday the market will focus on the minutes from the latest RBA meeting, the German ZEW confidence survey and housing starts and building permits out of the US.

Gold was down as said previously, to a 2 ½ week low of $1310 an ounce. Crude oil (US WTI futures) failed to hang on to the important $50 mark as it dropped to $49.69.

Source: Trade Forex with XM.

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