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Daily Forex Overview

Mon, May 26 2008, 08:30 GMT
by Raivis Zile

Dukascopy Swiss FX Group

Previous session overview

On Friday, the dollar declined, taken down by familiar foes that plagued the greenback all week - lower U.S. stock markets and global oil prices that remain high.

The Euro staged a dramatic recovery against the US dollar this past week as hawkish comments from the European Central Bank fueled speculation that a rate hike may be around the corner. The euro appreciated against the U.S. dollar on Friday as the single currency tested offers around the USD 1.5765 level and was supported around the USD1.5695 level.

The sterling crept higher against the dollar, pushing toward 1.9850. The 2nd release of UK Q1 GDP was unrevised at 0.4% q/q and 2.5% y/y. The British pound appreciated against the U.S. dollar on Friday as cable tested offers around the USD 1.9850 level and was supported around theUSD1.9755 level.

The yen advanced toward the 103-handle against the dollar amid sustained pressure in the price of oil and declines in equities. The yen appreciated against the U.S. dollar on Friday as the greenback tested bids around the JPY103.30 level and was capped around the JPY104.25 level.

The Australian dollar was slightly stronger late Monday supported by keen interest from Asian investors and firmer commodities prices despite a dip in risk appetite.

Market expectation

Analysts say a near-term change in the ECB's stance on monetary policy would require more intense weakness in German data. In the meantime, they say price stability will remain the ECB's focus, especially as inflation expectations in the euro zone are on the rise again.

Dealers look for EURUSD to have some trouble against the 1.58 level. Sell orders are said to be lined up around that level. However, a lift above 1.5820 this week could trigger a drive to 1.60.

This week, it may be US rather than Euro zone economic data that help the EURUSD inch towards 1.60.

In the U.K, The latest gauge of the housing market from the Nationwide Building Society due Thursday is likely to top the bill in a quiet week ahead for U.K. data, with economists predicting it will show residential property prices fell for the seventh consecutive month in May.

EURCHF has lost ground but that trend is set to reverse. Slightly longer term it views EURCHF as turning more positive and sees a weekly close above the 1.6347 key resistance.

CHF is in an upward trend due to a continued uncertainty about prospects for financial markets. However, the strengthening may soon run its course. The increase in risk aversion has clearly helped the Swiss franc, but there is doubt that this continuing for very much longer.

Trade in the Australian dollar is likely to remain slightly choppy in offshore trade with the U.S. and U.K. markets closed for public holidays and recent 24-year highs likely to pose an upside barrier for the unit.

Look for USDJPY to test near the 102.60-region, which marks the neckline for a double-top formation. A breach of 102.60 paves the way for a move toward 99.50.

Liquidity will be reduced on Monday on account of the long U.S. holiday weekend.

Most important events of the day

Published on  Mon, May 26 2008, 08:34 GMT