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Daily Forex Overview

Fri, Jun 6 2008, 10:20 GMT
by Raivis Zile

Dukascopy Swiss FX Group

Previous session overview

On Thursday, the dollar fell hard against the euro after the head of the European Central Bank said it may raise interest rates next month in an effort to control inflation.

Jean-Claude Trichet said that although the ECB has decided to leave interest rates alone at 4.0% this month, it may raise them at its July gathering because inflationary pressures, amid big gains in food and oil prices, will last longer than previously expected. As he said :"I don't say (a rate hike) is certain, I say it's possible".

EURUSD surged from 1.5380 to overnight highs just shy of 1.5600 on a much more hawkish than expected ECB President Trichet overnight. Trichet said the ECB have "heightened awareness", and warned that it was not excluded rates could by raised next month. While he qualified his comments by noting that it was just a possibility and not a certainty markets have moved to fully price in an ECB hike in July.

GBPUSD traded yesterday morning to a two-week low of 1.9461 after the Halifax UK House Price Index fell more than expected in May, later cable rebounded strongly to 1.9597 in tandem with euro on intra-day dollar's broad-based weakness. The Bank of England kept interest rates unchanged at 5.00% as expected.

USDJPY was sold heavily as key resistance levels were broken and equities rallied. USDJPY yesterday traded with a low of 105.21 and a high of 106.44 before closing the day around 105.89.

The Australian dollar was stronger late Friday as aggressive policy rhetoric from the European Central Bank chief and an upswing in investor confidence led the currency higher.

Market expectation

EURUSD managed to hold above its 38.2% Fibonacci retracement target of 1.5365 and the sharp rebound seen has taken the rate toward key resistance at 1.5630. EURUSD bought by Europe investors and may rise as far as 1.5650 after Trichet comments overnight which lent weight to expectations ECB may yet hike rates. Economic conditions in the euro zone are still better than those in the U.S. Even if speculation of a rate hike by the Fed later this year grows, players could keep buying the euro.

Most analysts believe the Australian currency remains very well supported on selling with a number of traders now expecting the unit to reach parity with the U.S. dollar this year or next.

USDJPY may climb to 106.50 on buying by Europe investors on expectations of pickup in European, U.S. equity markets after strong Asian stocks today.

Looking ahead, NonFarm Payrolls forecasted at -50k and Unemployment rate expected to rise from 5.0% to 5.1%.

Friday will see German industrial production, U.S. non-farm payrolls, unemployment rate, average hourly earnings and wholesale inventories. Investors are focusing on the jobs data as economists expect U.S. lost jobs in May for a fifth consecutive month.

Most important events of the day

Published on  Fri, Jun 6 2008, 10:23 GMT