Daily Forex Overview

Previous session overview

On Friday, the euro crumbled against the dollar Friday as risk aversion once again held sway in global financial markets.

The euro remained under heavy pressure on Friday as Euro-zone CPI estimates fell further below the European Central Bank’s 2.0 percent target to a nearly 10-year low of 1.1 percent from 1.6 percent.

The U.K. pound broke ranks with the European currency and posted sharp gains against the dollar as it rebounded from a 23-year low last week. The British pound rallied from 1.4185 to 1.4545 on better-than-expected mortgage data which showed that lenders in the U.K. granted 31,000 loans for house purchases in December, compared with 27,000 in the previous month.

The Japanese yen is stable, though overnight gains were erased following the release of US GDP data. Safe haven flows back to the USD are keeping the yen under pressure. Dollar rebounded from intra-day low of 89.15 to 90.09 against the Japanese unit.

With lower oil prices coupled with bleak US economic data released today, the Canadian dollar has lost some ground against its US counterpart.

The Australian dollar fell to a two month low in Asia Monday as expectations mount for another hefty rate cut by the Reserve Bank of Australia amid an ever darkening outlook for global growth.

Market expectation

The euro continued to fall in Tokyo Monday along with the British pound after Moody's Investors Service downgraded the long-term credit rating of major U.K. bank Barclays Bank PLC.

Asian players returning from the Lunar New Year holidays also dumped the common currency in reaction to more bad European economic data released Friday. This trend took foot as expectations mounted for global share prices to head down this week, encouraging more euro-selling for currencies considered safer havens, like the dollar and yen, dealers said.

EURUSD currently trades around USD1.2730. Bids remain in place on the approach to USD1.2700, with stops noted below USD1.2690. If stops triggered seen opening a deeper move toward USD1.2670 ahead of USD1.2650 and USD1.2620. Resistance seen placed at USD1.2745/50, more toward USD1.2765 ahead of stronger interest at USD1.2800.

The key issue for dollar-yen this week would be the "extent to which share prices are supported and the extent to which risk aversion retreats" on any positive news regarding the "bad bank" plans or the U.S. economic stimulus package now being finalized in Congress,

If euro pessimism continues to mount, the common currency could, in the near-term, fall back below USD1.2400 to lows not since seen November, Analysts said. This could come amid increasing flight to the safe-haven yen, meaning it would likely happen if the dollar falls below JPY87.10, the 13 and a half-year low it hit in January, analysts said.

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