Daily Forex Overview

Previous session overview

On Tuesday, the euro soared against the dollar in another session of exaggerated currency moves amid reduced market liquidity and a scarcity of traders. The euro's gains came largely from surging U.S. stock markets ahead of the presidential elections results. This boosted risk appetite in foreign exchange markets, leading to a reduction in the repatriation flows into the dollar seen in previous days.

EURUSD rallied strongly in NY, gaining close to 300-points on the session to an USD1.3049 high before easing back to close around USD1.2985. Early Asia saw an initial move to USD1.3032 later the rate was knocked down from USD1.2995 to USD1.2930. Supply was said from analytics to have come from a major Asian sovereign, with added momentum coming from US black-box funds. Bids at USD1.2910/15 then came under pressure as a Japanese name sold euro-yen, with the rate able to bounce back to USD1.2960 on short-covering.

Like the euro, the British pound rocketed nearly 500 points tough to peak between the Asian and US trading sessions, going so far as to test 1.6100. While the currency has since pulled back, support at 1.5912 has held GBPUSD afloat.

USDJPY gained steadily from just under 99.00 as London came in to as high as 100.50/55 in NY as risk aversion eased and various yen crosses rallied sharply.

The Australian dollar was firmer late Wednesday supported by better sentiment in financial markets despite a run of poor domestic economic data and forecasts. However, the currency met firm psychological resistance at US$0.7000 and is expected to bounce within a three U.S. cent range beneath that level until global economic indicators become clearer.

Market expectation

The euro is lower against the dollar and yen on Wednesday, after the Obama victory.

Market focus will shift to transition between U.S. administrations and how Obama selects key cabinet members and handles growing budget deficit, says analytics; in short term, key unanswered questions for markets are: What will be Obama's policies (particularly with respect to financial crisis), how will he run policy (i.e. will he defer to politics, expert opinion or drive his own agenda) and who will fill key positions.

Big tests for the Australian dollar will come in the next few days with the European Central Bank and the Bank of England due to hold their interest rates decisions. Less than a half a percentage point rate cut by either of these banks would not bode well for the Australian dollar after the RBA slashed its cash rate to 5.25% Tuesday.

Most important events of the day