Previous session overview

The dollar rose to a three-month-high against the euro in Asia Thursday due to concerns over European bond markets and the U.S. Federal Open Market Committee's slightly hawkish statement overnight.

The euro fell below USD1.4400 for the first time since Sep. 8, and dealers said the European unit may fall further if December's Philadelphia Fed Manufacturing Index due later in the day beats market forecasts. Economists polled by Dow Jones expect 16.4, a slight deterioration from the index's previous result of 16.7.

Investors turned bullish on the dollar after Standard & Poor's Ratings Services said it revised its rating criteria for covered bond programs, and after the FOMC released a post-meeting statement which some investors considered hawkish.

The U.S. rating agency said Wednesday it has placed CreditWatch on EUR1.46 trillion worth of covered bond programs as a result of the revision and signaled these programs may be downgraded in the next few months.

Meanwhile, the FOMC statement said "the deterioration in the labor market is abating" and "household spending appears to be expanding at a moderate pace." Long-term yields on U.S. Treasurys rose on this statement, and the dollar gained across the board in turn.

The dollar rose above JPY90.00, its highest since Dec. 7. As of 0450 GMT, it was at JPY90.22, up from JPY89.78 overnight.

The Australian dollar slumped to a ten-week low in Asia Thursday as U.S. dollar strength triggered a rash of technical selling, sending the local unit crashing with the move exaggerated by illiquid conditions.

Market expectation

For EURUSD short dollar positions expected to welcome any recovery attempt in euro-dollar and should make correction efforts difficult, traders suggest. Markets remain thin, which will add to current volatile conditions. Resistance seen placed between USD1.4415/25, a break above to open a move toward USD1.4450/55 ahead of USD1.4475/80. Support remains around USD1.4370/60, a break to allow for a deeper move toward USD1.4330/20.

For Pound support seen placed from around USD1.6200 through to USD1.6190, a break below to allow for a deeper move toward USD1.6165/55. Resistance seen placed at USD1.6230/35 ahead of USD1.6250.

Analysts said the dam burst of stop-loss sell orders means the Australian dollar could easily slide back towards USD0.8760, if not further, after the euro sunk through key support.

EURJPY - Thin conditions making for exacerbated moves into the European session, with yen crosses feeling the pressure, taking euro-yen to the day's lows around JPY129.00. Next support level seen placed at JPY128.80/70 (Dec lows and 76.4% retrace of JPY126.89-JPY134.54). A break below there may see little in the way of support ahead of the November base at JPY126.89.

European stocks are expected to open lower Thursday, following a broadly flat close on Wall Street and weak Asian shares, after the euro tumbled in the wake of Standard & Poor's downgrade of Greece's sovereign debt rating to BBB+ from A- and warning that a further downgrade could come.

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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