Daily Forex Overview

Previous session overview

On Thursday, the dollar rallied versus its major rivals as it cast off several recent anchors when oil prices declined and markets turned their focus to U.S inflation, boosting investor sentiment in the U.S. currency.

U.S. economy expanded in the first quarter of 2008 at a 0.9% annual pace, in line with economists' expectation. U.S. durable goods orders released on Wednesday fell by a smaller-than-expected 0.5% last month, bolstering the a view that the Fed may increase its interest rates later this year from the current 2.0%.

The euro depreciated against the U.S. dollar yesterday as the single currency tested bids around the USD 1.5520 level and was capped around the USD1.5665 level. The common currency has now been given for three consecutive days and stops were reached below the USD1.5560 level, representing the 38.2% retracement of the move from USD1.6020 to USD1.5280. Data released in the U.S. added to the growing consensus that the U.S. economy may have averted the technical definition of a recession in Q1 as Q1 GDP was upwardly revised to an annualized +0.9% rate from the previous estimate of +0.6%.

The British pound weakened against the U.S. dollar yesterday and cable tested bids around the USD 1.9675 level and was capped around the USD1.9815 level. The pair retraced some of its intraday losses during the North American session. Data released in the U.K. saw May CBU retail sales volumes print at -14, up from -26 in April while the prices sub-index surged to +56, reaching its highest level since May 1992. Bank of England Monetary Policy Committee member Blanchflower reported "Our forecast is that inflation will come down in the medium term, but our concern is that we wouldn't want economic activity to drop dramatically."

The greenback rose to a 3-month high against the Japanese yen as U.S. GDP increased in the first quarter of 2008 as expected, U.S. stocks rebounded and crude oil tumbled, brightening the outlook for the world's biggest economy.

The Australian dollar was weaker late Friday as the U.S. currency gained on positive speculation about Federal Reserve interest rate rises and commodity prices eased back from their bull run.

Market expectation

Fed Fisher's hawkish comments about hiking rates "sooner rather than later" are still reverberating through currency markets.

The USD's resilience may not last much longer now as concern over the US housing market and the continued decline in consumer confidence start to offset expectations of an early Fed tightening of interest rates. Some traders saying that environment has turned friendly toward the dollar and not only does it seem likely the Fed's round of easing is over, but hikes could be imminent.

USDCHF continues to show signs of recovery following a recent rebound. Move toward 1.0525 may be possible in the very near term with a level of 1.0343 seen probable slightly longer-term.

USDJPY slips as short-term speculators take profit, but likely to rebound later on U.S. data. Players focusing on U.S. PCE price index data for April and May Chicago PMI. Market players have shifted back to a dollar-buying trend. Support pair around 105.00.

Friday will see the release of Japan manufacturing PMI, Tokyo CPI, unemployment rate and industrial production, German retail sales, euro zone unemployment rate, U.S. PCE index, Chicago PMI and University of Michigan.

Most important events of the day