Morning Forex Overview

Previous session overview

The dollar rose against the yen in Asia Monday on speculation that Japanese institutional investors may buy a lot of dollar-denominated assets at the start of the new fiscal year Thursday due to strengthening U.S. interest rates.

The yield on benchmark U.S. 10-year Treasurys stood at 3.882% on Monday after rising close to the psychologically-key mark of 4.0% last week. The rising yields will likely prompt big Japanese investors, such as life insurance companies, to buy U.S. assets to gain better returns, said analysts.

Short-term Asian hedge funds bought the greenback on such speculation, and the U.S. dollar rose to JPY92.61 as of 0450 GMT from JPY92.50 in New York Friday as a result. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, fell to 81.547 as of 0450 GMT from 81.599.

The euro initially edged higher versus the greenback after buying interest right at Thursday’s New York low of USD1.3267 lifted price in Australia. Traders bought euro just before Asian opening on comments by ECB’s president Trichet at a late Thursday’s news conference in Europe, he denied criticizing the inclusion of IMF finance in any rescue package and said he was ‘extraordinarily happy that the governments of the euro area found out a workable solution.

The British pound also rose in tandem with euro and reached a high of USD1.4894 in Asian mid-day. Although renewed cross selling in sterling versus euro and Japanese yen caused price to slip back to USD1.4811 early in European morning, renewed buying interest emerged and cable rallied to USD1.4924 in NY morning.

The Australian dollar was weaker in Asia on Monday but supported from its lows after the central bank governor said in a television interview that policy will need to be tightened further.

Market expectation

Investors will be paying close attention to U.S. economic data this week, and if they come in better than market forecasts, the dollar may climb to a seven-month-high of JPY94.00 this week, said analysts.

The U.S. will release personal spending data for February at 1230 GMT. Any upside surprises could push the U.S. unit sharply higher because some investors betting that spending in February was actually weak due to unfavorable weather during the month, said analysts.

For EURUSD offers seen placed between USD1.3450/60, a break to open a move toward USD1.3480/85 ahead of USD1.3500 and the overnight high at USD1.3525. Support seen placed at USD1.3420/15, a break below USD1.3410 to open a deeper move toward USD1.3385/80 ahead of stronger interest between USD1.3350/40.

Looking ahead, the euro may remain choppy, some dealers said, because they are not sure whether future bond auctions by Greece will be able to find solid demand from investors.

U.S. non-farm payrolls Friday will also be watched, with the world’s largest economy expected to have added jobs in March, supporting the U.S. dollar in turn.