Forex Asia Review – Yen extends gains against dollar

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Euro remained above $1.32 in the Asia session after a strong rally against the dollar on Friday which was driven by weaker than expected US GDP. This raised expectations that the Fed may have to keep the door open for QE3 (quantitative easing) which is dollar negative. This prompted short covering and lifted EURUSD to a near one-month high of 1.3269 on Friday. The pair consolidated in the Asian session in early Monday trading, between 1.3229 and 1.3250.


Looking ahead, in the economic calendar today we have German retail sales and the euro zone flash CPI report. Spain’s GDP report is also due. This will be closely watched since the Spain is the fourth largest euro zone economy and Spanish debt has been in focus recently after the country’s bond bond yields have been rising.


Sterling edged up higher against the dollar, reaching a new eight-month high. GBPUSD opened in Asia at 1.6287 and climbed to 1.6260, the highest since August. Euro touched the weakest level in almost two years versus the pound, with EURGBP at  0.8126.   The difference in expectations on stimulus measures between the Fed and the Bank of England explains why sterling has outperformed the greenback, despite Britain’s double-dip recession.


Yen stayed firm against the weaker dollar. Also trading in the region was subdued due to markets being closed in Japan for a public holiday.  USDJPY extended losses to drop to 80.07, compared to the Friday close at 80.23. EURJPY fell to a fresh two-month low of 106.03 from the Friday close of 106.37.


Aussie eased slightly against the US dollar but was not far from the one-month high reached on Friday on the back of a weaker USD prompted by softer US GDP data.  There will probably be some consolidation ahead of the Reserve Bank of Australia meeting tomorrow. The RBA is expected to cut interest rates by at least 25 basis points. This may pressure the aussie. AUDUSD traded between 1.0468 and 1.0434.