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Daily Forex Overview

Fri, Jun 20 2008, 09:17 GMT
by Raivis Zile

Dukascopy Swiss FX Group

Previous session overview

On Thursday, the dollar edged higher versus the euro and yen as crude oil prices declined and U.S. stocks strengthened.

On Thursday, EURUSD opened the day on a strong footing as US growth concerns and resurfacing negative credit headlines weighted on the dollar. However, with the eco and financial picture in Europe very similar to the US, EURUSD couldn't build on this trading theme. EURUSD soon gave back the overnight gains and fell to the 1.5500 area where it already traded for most of the week.

The U.K. pound Thursday soared on news that U.K. retail sales rose 3.5% last month, versus an expected 0.1% decline. The data contradicted recent suggestions from the Bank of England that it can't hike rates in response to higher inflation because of the economic and financial risks.

The Japanese yen traded slightly weaker but off its weekly high after a survey showed business pessimism is spreading from the manufacturing sector to the country's service sector. Businesses cite the cause is due to a weakening domestic demand caused by rising raw material costs. The worsening outlook is likely to keep interest rates on hold at 0.5%.

The Swiss franc fell sharply Thursday after Switzerland's central bank left interest rates unchanged.

The Canadian dollar rose to its highest point in 2 weeks after a higher than expected CPI reading dampened expectations the BoC would cut rates. CPI rose 2.2% from 1.7% a month earlier.

The Australian dollar held onto one-week highs Friday, shrugging off an underbelly of risk aversion and weaker equity markets, as good demand for carry trades added support.

Market expectation

In a world of falling risk appetite, the SNB's decision to leave rates unchanged may not be so bad for the CHF after all. With Swiss growth slowing so sharply, inflation pressures could well subside, ensuring that the SNB doesn't inflict any further damage to the economy.

The next major focus for the Australian dollar is this weekend's oil summit in Saudi Arabia, as well as next week's meeting of the Federal Open Market Committee. But currency traders hoping that the meeting will result in any substantial action may be disappointed.

There will be no major economic data until the FOMC rate decision on Tuesday. An interest rate hike is not expected, but the Fed will need to increase their degree of hawkishness if they plan on raising interest rates in the fall.

After Thursday's rally on those strong UK retail sales, the GBP could look vulnerable to profit-taking. Some traders suggesting to go short cable as early as above 1.98.

On Friday, economic data releases include German PPI data (May), Swiss combined PPI data (May) and Canada's retail sales data (April). No major data is due out of the U.K. and U.S.

Most important events of the day

Published on  Fri, Jun 20 2008, 09:20 GMT