Daily Forex Overview

Previous session overview

On Wednesday, the dollar maintained its stride above the euro and yen, propped up by statements from Federal Reserve Chairman Ben Bernanke that reinforced those he made a day earlier, when he emphasized inflationary risks and the threat that a weak dollar would increase those risks.

The currency extended its gains yesterday as several economic reports came out better than expected. US ADP job report showed 40 jobs were added in private sector in May, beating the estimate of a 30k fall. Other US data released yesterday included the first quarter productivity, which rose 2.6% versus the estimate of 2.5%, and May non-manufacturing ISM, which came out at 51.7 above the estimate of 51.0.

On Wednesday, EURUSD entered a more sideways trading pattern after the steep gains on Tuesday in the wake of Mr. Bernanke's warning on the inflationary impact of the weak dollar. Strong US data and a fall in Crude Oil prices also weighed. EURUSD traded with a low of 1.5418 and a high of 1.5485 before closing the day at 1.5433 in the New York session.

The Sterling tested new lows as the May Services PMI came in contractionary for the first time in 4 years at 49.8. Overall the GBPUSD traded with a low of 1.9528 and a high of 1.9638 before closing the day at 1.9547 in the New York session.

Yesterday, USDJPY again mostly looked at the stock markets for guidance. So, during the morning session in Europe, the yen rose from USDJPY 105.20 to 104.60 as European stock markets were again spooked by credit fears. USDJPY traded with a low of 104.54 and a high of 105.38 before closing the day around 105.23 in the New York session.

The Australian dollar appreciated against major currencies due to the release of much stronger-than-forecast GDP which came in at a rise of 0.7% m/m and 3.56% y/y versus the expectations of 0.3% and 2.8% increase respectively, adding speculation the central bank will increase interest rates for a third time this year. Australian dollar rallied from 0.9486 to 0.9629.

Market expectation

GBPUSD - near-term technical outlook looks neutral to slightly negative.

Expect more of the same for USDJPY Thursday. The rate has been in the same range for 6 weeks and there's no reason that situation will change today. Look for an upside probe during the morning, with a slow drift lower very late in the day. And if the EURUSD falls further it could give the USDJPY the necessary boost to rise above JPY106.

Bernanke's comments may have raised the threat of more verbal intervention and make investors wary of holding short USD positions for long. But it doesn't mean that market intervention is any more likely or signals a change in Fed policy that will drive the USD higher.

ECB President Trichet is likely to be asked about Fed Chairman Bernanke's recent remarks on the dollar at the post rate meeting press conference later Thursday.  This may still prompt some USD buying, and looking at EURUSD traders expects it to struggle with 1.5485 resistance, while on the downside supports at 1.5410 and 1.5380.

Today, all eyes focus on the ECB and Bank of England rate decisions. Both are expected to leave rates unchanged at respectively 4% and 5%. Hence, no statement should be expected from the Bank of England, but the press conference of Trichet will be scrutinized to check the chances on an ECB rate hike in the second half of the year.

Thursday will see the release of Germany factory orders and U.S. jobless claims and traders are focusing on Friday's release of U.S. non-farm payrolls which is expected to reduce 55,000 jobs in May versus the reduction of 20,000 jobs in April.

Most important events of the day