The dollar fell on Tuesday towards a five-week low against a basket of currencies, with traders cautious ahead of a Federal Reserve policy meeting that may discuss the need for further easing. It struggled at 85.50 yen, supported by fear of Japanese intervention below that level but unable to rally, while the Australian dollar remained up near a two-year peak.
Few traders expect the Fed to apply another dose of quantitative easing (QE) just yet - and the dollar could advance short-term if that view proves correct. The dollar index fell 0.2 percent to 81.14, towards a five-week low of 80.865 hit last week.
The dollar fell 0.2 percent against the yen to 85.55 yen, keeping a tight range after Japan intervened in the market last week for the first time in six years. It has failed to get above its post-intervention high of 85.94 yen set last Friday, capped by Japanese exporter selling ahead of half-year book-closing on September 30, and more sales are expected towards the 86 yen level before then.
Its 55-day moving average, now at 85.87 yen, has become a resistance level since Japan intervened last Wednesday, and further resistance lies at 86.26, the bottom of its daily Ichimoku cloud. Rangebound yen trading since intervention has helped bring down dollar/yen options' implied volatilities. Its one-week volatility dropped to around 10.65/12.05 percent after shooting up close to 15 percent right after intervention.
The euro edged up 0.2 percent to $1.3090, less than a cent below a five-week high at $1.3160 hit on Friday, despite renewed worries over some eurozone countries debt. A triangle is forming on the hourly euro/dollar chart with parameters of $1.3100 and $1.3030.
While the euro holds above the $1.3030 area, some chartists see its August 6 high of $1.3334 as an upside target, but there are hurdles before it gets there, including the triangle top and its 200-day moving average which comes in at about $1.3220.