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Daily Forex Overview

Tue, Aug 5 2008, 08:11 GMT
by Raivis Zile

Dukascopy Swiss FX Group

Previous session overview

On Monday, investors sold the dollar as it fell against the euro ahead of Tuesday's interest rate decision by the Federal Reserve. Economists expect the FOMC to leave U.S. interest rates unchanged at 2.0% after its meeting. But a recent drop in oil prices has led investors to predict the FOMC's post-decision economic outlook statement may express less concerns than before over inflation.

Euro dollar closed in NY at USD1.5570/73, having pulled back from session rally highs of USD1.5625 to USD1.5565 given. Rate touched an early high of USD1.5576 before reversing, with initial downside momentum provided by macro fund dollar demand. Triggered stops below USD1.5550 added further weight, along with strong sales of euro-yen, which took the rate to lows of USD1.5523.

The Sterling was the big loser of the day as economic concerns mounted and expectations of rates cuts intensified. GBPUSD traded with a low of 1.9601 and a high of 1.9761 before closing the day at 1.9625.

The Japanese yen slipped versus the majority of the majors, as indicators of risk sentiment - such as the CBOE's VIX Index - and equity markets consolidate. USDJPY pushed back above JPY108.00 in the NY session, though the rate was unable to get above the recent highs, topping out at JPY108.29 and closing just off best levels.

The Australian dollar slumped to a four month low in Asia Tuesday and interest rate futures soared as the Reserve Bank of Australia sent its clearest signal yet rate cuts may be on the cards. At its August board meeting, the central bank left its key benchmark rate unchanged at 7.25% but said slowing demand has given the bank "scope" to move toward a less restrictive policy stance in the period ahead.

Market expectation

AUDJPY remains on downward trend after dovish RBA statement may extend losses to 99.00, analysts saying. But markets will likely become subdued later ahead of release of FOMC statement.

EURCHF may turn lower after failing to break a resistance at 1.6349/77. The cross may test a key support zone around 1.6188/31 in the next few days.

In Europe, it is the day for the July services PMI releases. The Euro zone release is expected to see the level unchanged from the preliminary reading at 48.3. Further Euro zone data sees June retail trade, which is expected to come in at -0.5% m/m, -1.1% y/y.

The main focus offshore is the Federal Open Market Committee meeting, where the Fed is expected to keep rates steady, but any warning that inflation remains a bigger threat than growth will likely boost the U.S. dollar, further straining the local unit, analysts said.

Most important events of the day

Published on  Tue, Aug 5 2008, 08:21 GMT