Market Rumours

EUR/USD should remain supported at its current levels unless it falls below 1.4780, HSBC currency strategist Robert Lynch says. If the pair breaches that level, it signals the next leg downward, toward 1.47, Lynch says. EUR/USD was at 1.4817, down from 1.4865 late Mon, EUR/USD lower after disappointing US consumer confidence data saps risk appetite from currency markets. EUR/USD at 1.4815, from 1.4865 late Monday.

Bearish bets on USD hardly uncommon these days, but Monday's market response to comments by a mid-ranking central bank official in Financial News sure looks like an overreaction; while official said China should increase holdings of euro, yen in its now USD-heavy FX reserves, there's no reason to think article foreshadows some new anti-USD shift in China's policy; report contributed to USD's recent woes, pushing EUR/USD to 14-month high of 1.5064. Beijing has made clear for some time that it wants to diversify types of assets in which it invests its reserves though composition is secret; while Beijing may have been buying more non-USD assets recently, there's no evidence of any sharp shift in its holdings; it also clearly worries that weakening USD is hurting value of its holdings, and surely recognizes that surest way to destroy value of those holdings would be to do anything drastic like dump its existing USD assets into an already jittery market.

USD/JPY marks 92.33, highest level since September 21, as overnight rise in U.S. Treasury yields couples with growing speculation Fed beginning to lay groundwork for eventual rate hike to boost preference for USD, says Shinichi Hayashi, FX dealer at Shinkin Central Bank. Adds after pullback in DJIA overnight, with Nikkei opening down 0.8%, "the selling of risk," buying back of USD vs riskier EUR also putting upward pressure on USD vs JPY. Says initial resistance at 92.50, with any breaches bringing next target at 92.80 into sight. Last 92.20.

EUR/USD could fall to two-week low at 1.4770 vs last 1.4867 as higher long-term U.S. interest rates, expectations for weak Asia share markets after DJIA closed down 1.05%, likely to weigh on pair, says Hideaki Inoue, senior FX dealer at Mitsubishi UFJ Trust and Banking. U.S. Treasury issuance concerns amid $123 billion in auctions (record for one week) pushed yield on benchmark 10-year note up to 3.57% overnight, making USD-denominated investments more attractive. Tips risk-sensitive EUR/JPY also lower in 136.00-137.50 band vs 137.10. Says USD/JPY may also benefit from higher U.S. yields, with pair targeting 92.70 on any further rises, vs 92.28.

Slumping regional share markets prompted participants in the options market to shop for short-term hedges against further falls in the risk-sensitive euro against the yen in Asia on Tuesday, driving up the price of euro-yen options. Benchmark one-month at-the-money euro-yen volatilities rose to 9.85%/10.85% from 9.45%/10.45% Monday in New York. Participants sought euro-put options after the common currency extended its overnight losses against the yen. The euro was down at Y136.85 at 0200 GMT from Y137.08 late Monday in New York. It tumbled nearly two yen overnight in New York as equities sagged on concerns over stricter banking industry regulations. Weak Asian share markets, with Japan's benchmark Nikkei 225 Stock Average down 1.46% in late morning trade, would likely continue weighing on the euro-yen, possibly to Y136.50, dealers said. "Since the trend of the market today is to cut risk assets, there is a risk that the euro could continue falling," an options dealer at a major Japanese bank said.