Daily Forex Overview

Previous session overview

The Fed has made it fairly clear that they shifted its focus to inflation, rather than growth.

EURUSD remains in medium term range near to record low for the fact that ECB could indeed hike earlier then the Fed. The Euro bowed to the USD momentum with stronger industrial numbers failing to slow the descent. EURUSD traded with a low of 1.5438 and a high of 1.5653 before closing the day at 1.5459 in the New York session.

Better than expected UK economic data failed to help the British pound extend its gains for the fourth day in a row. The RICS house price balance was higher than expected last month, suggesting stabilization in the housing market. GBPUSD traded with a low of 1.9538 and a high of 1.9756 before closing the day at 1.9538 in the New York session.

The US dollar hit a 3 month high against the Japanese Yen as broad dollar strength led the currency pair higher. USDJPY traded with a low of 106.25 and a high of 107.45 before closing the day around 107.30 in the New York session.

To the surprise of the markets, the Bank of Canada decided to leave interest rates unchanged at 3.00 percent compared to the market's forecast for a quarter point cut.

The Australian dollar was weaker late Wednesday, remaining under pressure in the wake of tough talk on inflation and the need for a stronger greenback by U.S. officials. Australia's Department of Employment said Wednesday that its leading indicator of employment fell to a negative 0.01 in June from a revised positive 0.155 in May.

Market expectation

With central banks showing more willingness to fight market forces, a bold and decisive move to support the USD could trigger a substantial downward correction in commodity prices and that can provide some breathing space on the global inflation front. The banks recommend taking long USD positions across the board. Traders also prefer sell EURUSD above 1.55, with a stop above 1.5550, and looking for the low 1.54 area to be test later in the day.

Analysts, however, doubt intervention in foreign exchange markets is a feasible option. Some think that there's a lack of coordination between the Fed and the European Central Bank. To make an intervention successful, the ECB would have to support the dollar by keeping its interest rates low.

The CAD's failure to rally much on the Bank of Canada's surprise decision to leave rates could spell bad news for the currency. This favors a further weakening of the CAD in the upcoming days and weeks. Analysts forecasting that once technical resistance is broken at 1.0350, USDCAD will accelerate towards 1.05/1.06.

The GBP could yet make it back up to USD2.00 if the market starts to bet that the Bank of England is going to get as hawkish as the Fed and the European Central Bank. GBP stands to gain the most, given its key rate, at 5%, is well above the 4% on offer in the euro zone and 2% on offer in the US.

Main focus in the European session will be UK employment data which is expected to show claimant count rose slightly to 8k in May. Unemployment rate is expected to be unchanged at 5.2%.

Most important events of the day