Previous session overview

The U.S. dollar soared to a fresh two-month high against the yen Wednesday, driven by short covering and U.S. data reinforcing the view that the Federal Reserve may raise policy rates next year.

The dollar hit JPY92.27 in early trade, and may gain this week above JPY92.50, a level not breached since the U.S. currency started a multi-week slide in late September that triggered threats of intervention by Japan's government. It also increased against the euro, but stopped short of a key technical level.

The euro, which traditionally rises when markets look for riskier assets, was also hurt after Moody's Investors Service Tuesday cut its rating on Abu Dhabi Commercial Bank to A1 from Aa3, reviving concerns of credit risk. Still, the single currency managed to hold the all-important psychological level of USD1.4300, and bounced higher from an intraday low at USD1.4303.

Cable started off the day trading sideways with no major data coming out of U.K. on Tuesday. Despite a brief rally to intra-day high at USD1.6070 after triggering stops in European morning, the British pound quickly fell from there. Price later nose-dived after the release of U.S. consumer confidence data and hit an intra-day low of USD1.5867 in NY afternoon before a minor rebound took place.

The Australian dollar spent the Asian trading session Wednesday giving back gains posted overnight, weighed down by a stronger U.S. dollar. Low volumes persisted ahead of the New Year holiday period.

Market expectation

The dollar is adding to gains against the yen and euro, but is only marginally higher against the U.K. pound, as some investors seek risk protection.

The dollar may receive an additional boost later today, especially against the yen, if the Chicago PMI for December, due 1445 GMT, comes in better than expected, traders said.

European stocks are expected to open slightly lower Wednesday, as investors look to take money off the table on the last full trading day of the decade.

Euro zone M3 data for November will be the key data release today, with the three-month average growth rate expected to decline to +0.8% from +1.6% in October. Such a weak print would set a new record low for the series, increasing concerns within the ECB about the possible emergence of a credit crunch next year.

The dollar's rally versus the yen picked up steam Tuesday after the S&P Case-Shiller home-prices indexes showed U.S. home prices decreased at a slower annual rate in October, a bullish signal for the all-important real estate sector.

The dollar now faces its next resistance at JPY92.33, around its October high, and then JPY92.55, just above the high hit on Sept. 21, analysts said.

Disclaimer: the data made available by Dukascopy (Suisse) SAis for informational purposes only. Publication of this data by Dukascopy (Suisse) SA does not constitute provision of investment advice and Dukascopy (Suisse) SA assumes no responsibility with regard toany information, forecast or recommendation herein contained and assumes no responsibility with regard toany losses resulting from any activities conducted the basis of this data, including any investment decisions.

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