Daily Forex Overview

Previous session overview

On Monday, the dollar rose slightly as less volatile oil prices and U.S. stock markets improved sentiment, though a lack of major U.S. economic data prevented any notable moves in the buck. Mostly, traders just held their positions as they waited for an important U.S. employment report for June and an interest-rate decision by the European Central Bank, both of which are due at the end of the holiday-shortened U.S. week.

The Euro found trading above 1.5800 temporary even as the June Euro zone Inflation Report came in at 4.0% on the high end of expectations. The elevated Euro levels brought more overvalued comments this time from French President Sarkozy and ECB's Almunia. EURUSD traded with a low of 1.5732 and a high of 1.5836 before closing the day at 1.5757.

The British pound lost ground against the US dollar as economic data confirmed further softening in the UK economy. GBPUSD traded with a low of 1.9882 and a high of 1.9966 before closing the day at 1.9927.

The volatility in the Dow has caused a significant amount of volatility in the Japanese Yen crosses. The US dollar broke below the 105 level shortly after the London open but ended the day higher against the Japanese Yen. USDJPY traded with a low of 104.99 and a high of 106.47 before closing the day around 106.05.

The Australian dollar was weaker late Tuesday, driven off a fresh 24-year-high by end-of-financial-year window dressing and less hawkish comments from the Reserve Bank of Australia.

Market expectation

A noticeable move to a more neutral-sounding bias by the RBA Tuesday weighed on the Australian dollar in late Asian trade, with market participants starting to further unwind expectations for another interest rate hike in 2008. Interest rate market participants are now pricing in a 60% chance of a quarter of a percentage point RBA hike by the end of the year, down from a 68% probability ahead of the statement.

USDJPY falls over 30 sen to session low of 105.65 as non-Japanese players entering market sell; pair last at 105.79, may decline further to 105.00 later in day. ISM manufacturing index due later today, but with many sell orders lined up around mid-106, gains likely to be limited even if data stronger than expected; pair's fall likely fast though if results weak, with next support eyed at yesterday's low of 104.99.

Analysts said the euro-zone inflation numbers suggest the ECB, in addition to raising its key rate to 4.25% Thursday from the current 4.0%, may also suggest in a press conference after the meeting that it may raise rates more in the coming months. And the U.S. jobs report, also due Thursday, is expected to show a decline in jobs for the sixth straight month.

Most important events of the day