FOREX ASIA UPDATE - USD

The US dollar was stable overnight with EURUSD trading a 1.3052 to 1.3119 range and USDJPY between 117.75 and 118.29.
A retracement in Fed easing expectations and a generally more stable environment for carry trades has helped stabilize the USD over the past two weeks.

Today, the last major event risk of the year arrives with the BoJ announcing its policy result anytime after 0300 GMT.
Diminished expectations for BOJ policy tightening at this week's meeting has been a key element in helping to support key carry trade currencies, including the USD, and there remains some risk that more hawkish language from the BoJ Governor following the result puts renewed pressure on JPY funded positions into year-end.

Indeed, a number of JPY crosses are looking fragile, suggesting some wariness into the result.

Absent a surprise from the BoJ, the USD seems likely to stay well supported in the final two weeks of the year, with EURUSD testing key support around 1.3030, as the thinning data calendar offers little obvious catalyst for a recovery in Fed easing expectations.

In the new year, we expect data to re-enforce market concerns on the health of the US economy, and a rebuilding of Fed easing hopes should keep EURUSD pointed towards 1.35.

Looking ahead US housing starts for November are due at 1330 GMT. Our economists suspect that the 15% plunge in starts in October exaggerated weakening in the underlying trend, and we look for a partial reversal in November.