Daily Forex Overview

Previous session overview

On Friday, a bout of profit-taking hit the dollar and the yen, forcing them to give back a large portion of their early gains.

EUR's initial sell-off took it to around 1.2765, the ensuing rally to 1.3035. Funds were seen taking profit on long USD positions, and China was rumored to be selling USD against a basket of currencies.

The British pound plummeted toward support at the psychologically important 1.35 level, before rebounding 300 points, as UK figures reflected the sharpest economic contraction since 1980. Indeed, Q4 GDP was worse than expected at -1.5 percent, marking the second straight quarter of contraction.

The yen hit record highs against the pound and is nearing seven-year highs against the euro as financial sector woes pushed European shares down over 2 percent to a six-year low. The Japanese currency hovered near a 13 and a half year high against the USD.

The Canadian dollar extended its earlier losses after official data showed that downward pressure on Canadian consumer prices intensified in December, giving the central bank more room to cut interest rates again.

AUDUSD pattern was much the same, taking a dip to 0.6420 and then rallying to 0.6590 area, before running out of steam.

Market expectation

The euro is mixed Monday, with the Chinese New Year celebrations slimming volumes. Strategist points to U.S. data, quarterly earnings reports and the Fed meeting as key events this week. While the Fed is tipped to keep rates on hold, talk of quantitative easing may provoke some dollar weakness early in week but the euro is unlikely to benefit much.

EURUSD continues to pare earlier losses, now back at 1.2940 as Japan investment trusts buy non JPY currencies like USD, EUR, say traders. But analysts don't think the euro has the power to top near-term resistance at 1.2980 given nagging worries about Europe economies; support tipped at 1.2900.

The pound is likely to renew its downturn in the weeks ahead as investor's worldwide dumped U.K. financial assets amid signs of a worsening economic and fiscal outlook.

Demand among Japanese institutional investors for European assets helped lift the single European currency, which in turn prompted speculators to trim short-term bets on declines in the euro, dealers said.

Buying of the euro versus the yen - which involves purchasing the dollar for the yen in the process - also boosted the greenback against the Japanese currency, they said.

Most important events of the day