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    Asian Session – Dollar recovers following signs of stability in China

    The US dollar staged a modest recovery versus the Japanese yen while the euro was facing challenges both against the dollar and against the yen, as there were tentative signs that yesterday’s rout in the Chinese stock market was under control today.

    The euro from its part appeared to be under intense pressure following the release of weaker-than-expected preliminary German inflation numbers on Monday and ahead of today’s flash Eurozone inflation estimate. During Monday’s US session the euro traded as low as 1.0781 against the dollar; the lowest since the ECB decided not to enlarge its monthly bond-buying program more than a month ago. The euro rebounded to 1.0815 in early European trading.

    The US dollar was also not overly affected by the worse-than-expected Manufacturing ISM yesterday, which showed the sector continuing to contract. All eyes are on Friday’s nonfarm payrolls report and its possible implications for the Federal Reserve’s next tightening.

    There was not much fundamental news during today’s Asian session, but there seemed to be some volatility carried over from the previous day’s tumultuous moves. The Australian dollar recovered to trade above the 72 US cents level after some violent selling the previous day which saw it dip to as low as 0.7154. There was calm today in the Chinese stock market, after the regulator said it would continue to ban certain types of share sales. The central bank also set the yuan’s mid-point a bit higher which also sought to calm nerves. There was nevertheless a sense of unease in terms of what might happen next in China and investors were keeping a close eye on developments in the world’s second largest economy.

    Looking ahead to the remainder of the day, Eurozone flash inflation and UK construction PMI will be the main events to watch early in the European session. In the United States, there will only be some retailer statistics, the ISM New York and vehicle sales, which are unlikely to have an impact on foreign exchange. The Global Dairy Trade auction results expected during the US session could move the New Zealand dollar.

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