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Daily Forex Overview

Tue, Jun 17 2008, 11:07 GMT
by Raivis Zile

Dukascopy Swiss FX Group

Previous session overview

On Monday, the dollar reversed direction from its rally last week after finance ministers from leading industrial nations failed to address the greenback's recent exchange rate weakness in a weekend meeting.

The euro was additionally supported against the dollar by the latest European inflation data that made a rate hike by the European Central Bank next month all the more likely. The euro rallied to a session high of 1.5519, pushing further away from Friday's one-month low at 1.5303 versus greenback, up 0.6 percent on the day. The euro zone inflation data prompted hawkish comments from ECB Governing Council member Nout Wellink, who said stabilizing inflation in the medium term was a priority.

The British pound rocketed higher against the U.S. dollar today as cable tested offers around the USD 1.9685 level and was supported around the USD1.9455 level. Sterling shook off CBI's gloomy 2009 U.K. economy growth forecast that predicts the economy will slow to its lowest level since 1992. The Financial Times reported U.K. Chancellor of the Exchequer Darling will institute a major regulatory shake-up in this week's Mansion House speech. Bank of England released research today that suggests the recent spike in U.K. inflation is having a negative impact on the public's inflation expectations, raising the risk that inflation will remain elevated in the medium-term.

On Monday, USDJPY was locked in a rather tight 107.95/108.55 trading range. Despite the G8 giving no clear support to the dollar, the pair set a new short-term reaction high in the 108.55 area at the end of the Japanese trading session on a decent stock market performance.

The Australian dollar was higher late in Asia Tuesday, helped by a weakening U.S. dollar as traders toned down views the Federal Reserve may hike rates in coming months.

Market expectation

The dollar slipped overnight as press speculation built that the markets have factored in too many Fed rate hikes, with WSJ reporting that the Fed is almost certain to leave rates on hold next week.

Although it would seem that the Dollar buying mindset has hit a temporary pause, it is safe to believe that many are looking to the slew of US data to be released, including; PPI, Current Account Balance, Industrial Production and Housing Starts. Beyond that, as is now par for the course, keep an eye on Crude Oil and its wild price action to see if it can top yesterday's record highs.

Tuesday's focus is on the German ZEW, US PPI and US housing starts. A weak ZEW survey from Germany may give the EURUSD some support, but US production and housing data are also expected to disappoint.

GBPUSD - bounced strongly from the USD1.9616 Asian low to a USD1.9677 session high, with upside momentum still strong into early European dealing as the pair pushes on to highs for the day just shy of USD1.9690 at time of writing, in line with Monday's highs. Stops now come in at USD1.9695 in small. Some traders believe BoE's Monetary Policy Committee will become more vocal this week about the prospect of raising rates in the near term.

Some analysts thinks that If the Australian dollar failed to reach parity when the cash rate was rising in Australia and the U.S. dollar was under downward pressure, parity is now more arduous in an environment of steady Aussie rates and a rising U.S. dollar.

Most important events of the day

Published on  Tue, Jun 17 2008, 11:27 GMT