Dukascopy Market Review, European Session, 16th November

Previous Session

The euro gained more ground against the dollar in Asia Monday as signs of strong demand for commodities including gold added to hopes that the world's economy is recovering, prompting traders to buy high-risk currencies.

Meanwhile the release in the session of unexpectedly strong Japanese gross domestic product data for the third quarter had no clear impact on the currency markets, which were focused more on stock and commodities prices as well as coming U.S. events.

Japan's government said the nation's GDP grew a price-adjusted 1.2% in July-September from the prior quarter, or a 4.8% increase on an annualized basis. The result beat the 0.6% on-quarter growth and 2.2% annualized rise expected by economists.

The euro climbed to an intraday high of USD1.4973, about half a U.S. cent higher compared with late Friday in New York. Its appreciation comes as spot gold rose to a fresh record of USD1.127 a troy ounce during Asian hours, prompting speculators to unwind bets against currencies that are considered riskier than the U.S. unit but pay the buyers more interest, such as the Australian dollar and sterling as well as the euro.

The Pound rallied with the improvement in risk appetite after finding solid support inside the USD1.65 figure on Thursday. The pair finished near USD1.6700 with the EURGBP testing support at 0.8920 as the Pound recovery continued.

The Australian dollar enjoyed a firm rebound in Asia Monday on solid investor risk appetite but dealers said a slew of risk events offshore will set the tone for the coming week. Topping the agenda is a speech by U.S. Federal Reserve Chairman Ben Bernanke in New York, along with other Fed speeches and retail sales numbers for October.

Market Outlook

Until the U.S. Thanksgiving holiday on Nov. 26, around which time the volume of global currency trades often starts shrinking as U.S. players go on vacation, the euro could rise to USD1.5300 amid a continuing broad downtrend in the greenback, traders said. A fall below USD1.4700 is unlikely over that period, he added.

For EURUSD offers seen placed toward USD1.4980/85, stronger on approach to USD1.5000 with traders suggesting that sovereign accounts are expected to try and keep rate enclosed within a USD1.4800/1.5000 range. A break above USD1.5000 may expose USD1.5015/20 ahead of stronger USD1.5050/65 area. Barriers have recently been noted at USD1.5050 and at USD1.5070 (recent high USD1.5049), as well as a USD1.48/1.51 short dated don't in play (helped to keep rate buoyed above USD1.4800 Friday). Support USD1.4920, USD1.4905/00.

The sterling against the dollar is likely to trade with risks skewed higher this week as long as the pair stays above Thursday's low of USD1.6514. However, sterling may struggle against the euro.

Federal Reserve Chairman Ben Bernanke is scheduled to speak late Monday and his speech is seen as key to determining the path of the dollar into the end of the year, analysts said.