Daily Forex Overview

Previous session overview

On Tuesday, the euro and U.K. pound shot to multi-week highs with a surge in risk appetite on the creation of a new lending facility by the Federal Reserve to support consumer credit and the market for mortgage-backed securities.

The euro strengthened sharply against the dollar as the US government agreed to inject USD20 billion of new capital to rescue Citigroup. German corporate sentiment fell more than expected in November as firms remained gloomy about future prospects. EURUSD traded with a low of 1.2806 and a high of 1.3081 before closing the day at 1.3060.

The Sterling extended the recovery envelope even after BoE's King had very dovish things to day about the UK economy. GBPUSD rallied above the 38.2% fib of 1.6671-1.4557 at 1.5361, which also provided support in the past on October 24, October 27, and November 11.GBPUSD traded with a low of 1.4985 and a high of 1.5535 before closing the day at 1.5480.

While the inverse correlation between the US dollar and stocks didn't hold up today, the Japanese yen did manage to hold up on Tuesday, gaining roughly 1.5 percent versus the euro and over 2 percent against the US dollar.

The Canadian dollar appreciated against the dollar as rallies in global equity markets help investor risk appetite.

The Australian dollar is unchanged late Wednesday after thin trading, as market participant await yet another set of U.S. economic data due later that are expected to highlight the depth of slowing in the world's largest economy.

Market expectation

EURUSD on Wednesday is seeing some profit-taking by European investors and Japanese short-term fund players, dealers said. The pair has immediate support at 1.2945, then 1.2830. Dealers said that due to selling was not caused by a new factor, the pair won't likely fall below the first support.

Analysts and economists say the dollar could become an unintentional victim of the U.S. government's efforts to revive credit markets. By expanding its balance sheets, the expectation is that the government will have to issue more debt, which would need to be financed with foreign capital.

EURUSD currently trades around USD1.2978. Resistance remains toward USD1.3000 (USD1.2993 38.2% USD1.3070/1.2946), a break above the figure to open a move on toward USD1.3020/25 ahead of USD1.3040/50 and stronger area between USD1.3070/80 (USD1.3070 Asia high/USD1.3081 NY high).

Figures on jobless claims and durable goods orders are due, both of which could prompt another round of safe haven flows into the U.S. dollar, weakening the Australian currency, analysts said.

Already thin trading volumes are expected to dissipate further as U.S. markets wind down ahead of the annual Thanksgiving Holiday, analysts said.

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