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Daily Forex Overview

Wed, Jun 4 2008, 10:06 GMT
by Raivis Zile

Dukascopy Swiss FX Group

Previous session overview

On Tuesday, the dollar was sharply higher against the euro and yen after Federal Reserve Chairman Ben Bernanke offered potent words on the central bank's commitment to a strong U.S. currency.

Later, the dollar lost some of its gains against both rivals, as U.S. stocks fell on banking sector fears with shares of Lehman Brothers down to levels not seen since the depths of the credit crisis.

The euro tumbled close to US2 cents on Bernanke's speech from highs near USD1.5600 to lows just above USD1.5400. EUR recouped a fraction of its losses in afternoon NY trading amid a sharp selloff in US equities linked to renewed concerns about the health of US investment bank Lehman Brothers. EURUSD traded with a low of 1.5410 and a high of 1.5628 before closing the day at 1.5445 in the New York session.

Concerns that Bradford and Bingley's financial problems could send the UK credit and housing markets reeling have died out over the past 24 hours; but the damage has already been done with the pound now consolidating nearly 200 points below the week's open. The Sterling had a volatile day trading higher inline with the Euro shrugging off a poor Construction PMI of 43.9 which indicated a recession in the UK housing sector. GBPUSD traded with a low of 1.9607 and a high of 1.9741 before closing the day at 1.9630 in the New York session.

The JPY crept forward against most currencies on negative equities and rising risk aversion inspired by Lehman Brothers concerns. Fed Reserve comments proved more powerful though sending USDJPY back through the 105 level. USDJPY traded with a low of 103.87 and a high of 105.70 before closing the day around 105.05 in the New York session.

The Australian dollar was also at the whim of the USD sliding about 80pips in the wake of Bernanke's comments, but it continues to run into good support just ahead of USD0.9600.

Market expectation

Bernanke's comments about the USD suggest that there is a limit to US policymakers' tolerance for USD weakness. Although direct intervention remains unlikely, the US could show more support for global intervention now. The Fed could still cut rates some more if economic data continues to deteriorate.

The low close in EURUSD Tuesday keeps downside pressure intact, with the first target being Tuesday's USD1.5410 low. A break here opens risk to the May 8 low of USD1.5284. EURUSD now trades at USD1.5431, with resistance pegged at USD1.5485/90.

Analysts suggested that the dollar was getting ahead of itself. Later this week, European Central Bank President Jean-Claude Trichet is expected to remain hawkish after the bank Governing Council meeting Thursday, and U.S. nonfarm payrolls are set for release Friday.

The chairman's suggestion that the central bank will keep interest rates on hold is dollar supportive.

USDJPY may face difficulty rising any further after Fed Bernanke comments. Comments on currencies from the Fed Chairman are a very rare thing and surely had a supportive effect on the dollar. But now, positive economic indicators will have to back up the dollar or the impact will be wiped out soon. Japanese exporters lined up above 105.50, so pair may need boost to break above.

Traders likely to be wary of taking AUDUSD much further ahead of RBNZ decision tomorrow despite stronger than expected Australian GDP.

In the coming session, traders will look into Germany May services PMI, euro zone May composite PMI, euro zone May services PMI, UK May services PMI, and euro zone April retail sales.

Wednesday also will see US May ADP employment, US Q1 productivity, and US May non-manufacturing ISM.

Most important events of the day

Published on  Wed, Jun 4 2008, 10:11 GMT