One Stop Centre of Financial Market Trading blog

Previous session overview

The euro rose against the dollar in Asia on Tuesday due to knock-on effects from the Australian dollar's surge, which was propelled by the Reserve Bank of Australia's surprise interest-rate hike.

The central bank tightened its benchmark cash rate by 25 basis points to 4.75%, a move traders said was a big surprise. Many market participants had believed the RBA would leave rates unchanged.

While the Australian currency rose sharply, the euro also benefited from the rate hike as the two currencies are closely correlated.

The Australian dollar rose to USD0.9990 from USD0.9881 and to JPY80.43 from JPY79.63 before the RBA's announcement. The euro was at USD1.3927 and JPY112.16 as of 0450 GMT from USD1.3885 and JPY111.91 on Monday in New York.

The U.S. currency was at JPY80.52 at 0450GMT from JPY80.60, and dealers said it could fall below the all-time low of JPY79.75 later in the global day.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 77.090 from 77.294.

Sterling, now higher against the dollar, is likely to consolidate with risks skewed lower, while investors await the Fed's move and how it could impact the pound, which itself is vulnerable to weak U.K. housing data. Against the euro, the pound is now a tad lower, with the cross buffeted by reduced expectations the Bank of England will announce more bond purchases Thursday, despite recent data.

Market expectation

Dealers said the dollar should keep weakening against not only the euro but also the yen, as short-term speculators are decreasing their holdings of the greenback ahead of a two-day Federal Open Market Committee meeting ending Wednesday.

Many investors think the FOMC will take additional easing measures to prop up the economy. This should push down yields on U.S. bonds and make the U.S. currency less attractive.

EURCHF is now in a bullish trend, with near-term upside potential seen to 1.3924. Above that area, there is scope for gains to 1.4041, say technical analysts. Near-term support is pegged at 1.3540.

European stocks are expected to open largely unchanged Tuesday after an uninspiring close on Wall Street Monday and little direction from Asia overnight, but eyes will be on a slew of earnings in the U.K. ahead of key events in the U.S.

Nov 02	Count.	Event	For	Unit	Imp.	Act.	Cons.	Prev.
03:30	AU	RBA Interest Rate announcement
07:00	IE	Manufacturing PMI	Oct	Index				48.4
08:00	ES	Unemployment	Oct	k			82.8	48.1
08:00	GB	Halifax House Price Index (2nd-6th)	Oct	% 3m y/y			0.8	2.6
08:00	GB	Halifax House Price Index (2nd-6th)	Oct	% m/m			0.6	-3.6
08:15	ES	Manufacturing PMI	Oct	Index				49.6
09:00	GR	Manufacturing PMI	Oct	Index				44.7
18:00	NO	Norges Bank Governor Gjedrem gives speech at the Polytechnic Association
19:00	IT	Budget Balance	Oct	EUR bn				-12.7
22:30	AU	AIG Performance of Services	Oct	index				45.6