Previous session overview

The dollar inched up against the yen in Asia Wednesday as long-term-focused Japanese retail investors bought the unit on lows to beef up dollar portfolios.

The amount of buying from these investors was not large, dealers said. But it had some impact on the market because other major players, such as short-term-focused hedge funds, stayed on the sidelines ahead of U.S. payrolls data from Automatic Data Processing due later in the global day.

The U.S. unit was at JPY88.58 at 0450 GMT, higher than JPY88.54 in New York Tuesday.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 85.974, down from 86.105 last night.

The euro, meanwhile, was at USD1.2220 and JPY108.25 from USD1.2196 and JPY107.97 in New York last night due to buying from Japanese retail investors, dealers said.

The British pound pared gains with the dollar as investors fear funding concerns in the Euro zone. Domestically, British mortgage approvals were lower than expected at 49.8K in May from its forecasted 51.0K.

The Australian dollar dropped in Asian trade Wednesday and bonds rallied broadly as economic concerns in Europe and the U.S. rippled across the globe.

For the higher-yielding, higher-risk Australian dollar, a renewed escalation of European debt concerns in the past few days has been particularly harrowing. On Tuesday, a downgraded economic outlook for China put Australian dollar traders on edge, with these European concerns pushing the Australian dollar back below USD0.8500 at one point for the first time in more than two weeks.

Market expectation

The euro is stronger against the U.S. dollar and the yen, as players come in to cover short positions on the single currency.

Investors are worried that the euro zone sovereign debt crisis could spill into the region's financial sector, as Thursday's deadline for banks to repay EUR442 billion in 12-month funding approaches.

The euro's near-term direction against the dollar will depend on the outcome of the ECB's tender for three-month loans due later, which will illustrate the extent of the banks' demand for central bank funding, analysts said.

Once the dollar falls below the psychologically important JPY88.00, will likely drop sharply toward JPY85.00 because of a significant amount of automated stop-loss selling orders, dealers said.

There is a significant risk of the single unit falling toward its eight-and-half year low of JPY107.00 later in the global day, dealers said.

Still, Tokyo dealers warned the greenback may suffer sharp declines if the data miss forecasts, as such an outcome will encourage investors to speculate that the key U.S. non-farm payrolls survey due Friday will also turn out weak.

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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