Daily Forex Overview

Previous session overview

On Friday, the dollar fell against the euro by the most since it began a strong rally two months ago, as a weak U.S. retail sales report reignited fears the Federal Reserve may have to cut interest rates again.

The Euro rallied extended 2.3 percent higher against the Japanese yen and 1.6 percent versus the US dollar as the oversold currency finally reversed.

The Pound Sterling strengthened against the dollar after weaker than expected US retail sales. Although the UK has had bleak economic growth and inflation outlook, Bank of England policymaker Paul Tucker indicated that the central bank was in no hurry to cut rates.

The Japanese yen tumbled across the majors, but losses for the low-yielding yen were hefty as the currency lost nearly 3 percent against high-yielders like the British pound and Australian dollar. The yen appreciated against the U.S. dollar as the greenback tested bids around the JPY106.80 level and was capped around the JPY107.85 level.

The Canadian dollar strengthened against the US dollar after weaker than expected US retail sales data, and prices for crude oil and gold rose.

In a day when the global financial system was rocked to its core, the Australian dollar managed to jump over two U.S. cents in Asia Monday, with further sharp gains expected in offshore trading on the back of renewed U.S. dollar weakness. A decision by Lehman Brothers to file for Chapter 11, coupled with Merrill Lynch's agreed sale to Bank of America prompted a flight away from the U.S. dollar, helping the local unit higher.

Market expectation

Europe opens to a new landscape with Lehman Brothers filing for chapter 11, Bank of America buying Merrill Lynch and talk that AIG is seeking a USD40B bridging loan. On the back of all this the USD was hammered in a holiday-thinned Asia market, with the likes of EURUSD and GBPUSD now some 5 cents off last week's lows. Risk aversion has spiked as equities take a beating, with Europe expected to open around 3% down, EURJPY is trading 200 seen off session highs.

EURUSD reported support between USD1.4305/00 so far able to contain the extended pullback, though recovery efforts have so far proved shallow. Should USD1.4300 give way, and rate clear below, seen opening a deeper move toward USD1.4265/60. Offers now seen placed toward USD1.4350, more between USD1.4390/1.4410.

Most important events of the day