Daily Forex Overview

Previous session overview

The euro fell further against the yen and dollar in Asia Monday, as players continued to trim their common currency holdings on growing speculation of a higher possibility of European monetary easing.

Players were selling the euro, which benefits from the relatively higher interest rates in the euro zone, as worries grew that those rates would soon be heading lower, dealers said.

European Central Bank president Jean-Claude Trichet suggested in Tokyo over the weekend that the bank may cut its key interest rate by 25 basis points to a record-low 1.0% at its next rate-setting meeting on May 7.

He also left open the possibility that the bank may implement non-traditional measures to increase the amount of money in the economy.

On Friday, EURUSD drifted lower throughout most of the trading session. The move started in Asia and accelerated after a speech of ECB president Trichet that came on the screens before the open of the European markets. EURUSD dropped below the USD1.31 support area and this triggered additional euro selling. EURUSD closed the session at USD1.3044, compared to USD1.3186 on Thursday.

Sterling fell against the dollar as risk-aversion drew investors to the dollar. British Trade and Investment Minister Mervyn Davies said that he is not worried about the weakening of the pound as it will help drive the British economy out of recession. A slide in the currency helps the competitiveness of UK exports.

The Japanese yen maintained its firmness against the dollar as uncertainty about the prospects for global economic recovery helped the risk-averse currency.

The Australian dollar was largely unchanged in Asian trading Monday, in a quiet local session, as traders await a slew of risk events in the coming week. The Australian dollar was USD0.7184, down marginally from USD0.7187 late Friday. Against the Japanese yen, it was JPY71.035, down from JPY71.055.

Market expectation

The euro is still struggling in currency markets, after falling Friday, as the debate continues as to what the European Central Bank might do with monetary policy in the near term.

In the near term dealers said the U.S. currency was unlikely to move significantly in either direction against the yen. Most dealers expect currency market volatility to remain low, keeping the unit in its recent JPY98-JPY101 band.

EURUSD currently pivoting USD1.3000, with talk level holds decent sized expiry interest. Bids seen placed around the overnight low, with interest extending to USD1.2945 (61.85 USD1.2455/1.3735). Resistance USD1.3020, USD1.3050 ahead of USD1.3080.

The main local highlight is a speech by Reserve Bank of Australia Governor Glenn Stevens on Tuesday, which will be closely watched for any update on the bank's monetary policy outlook.

Most important events of the day