Daily Forex Overview

Previous session overview

The dollar and yen rallied on Monday as a sharp slide in stocks worldwide boosted safe-haven demand for the U.S. and Japanese currencies.

The yen fell against the euro after it hit a one-month high on Tuesday, as Asian short-term investors bought back the European unit to adjust their holdings.

The yen also fell against the dollar for the same reason, but traders said the Japanese unit may strengthen against the two currencies in the near term due to growing wariness about taking risks among traders.

On Monday, EURUSD extended the decline that already started last week. Stocks were heavily sold and this helped the dollar to profit from its safe haven status. Initially the euro losses were still rather contained. Nevertheless, the pair gave away the USD1.2990 support area in Asia. The pair even temporary tested offers below the USD1.29 mark, but closed the session at USD1.2921.

The Sterling fell sharply with the Euro early in Asia as concern of over the weekend about the UK government's debt position and banking worries weighed heavily. Selling continued into Europe after EURGBP broke higher and GBPJPY selling intensified.

The Japanese Yen reclaimed the number one safe haven currency position with USDJPY easing during the day from above JPY99 to below JPY98.

Rising risk aversion hurt the Australian dollar Tuesday while interest rate futures surged, with further currency weakness expected from another mix of U.S. earnings and top tier economic data due later in the day.

Market expectation

The euro is rebounding on some short-covering from earlier losses after briefly falling below JPY126.17 for its lowest level since March 16. Yet it could still turn lower.

Currency analysts said this is likely the start of fresh yen strength, aided, in part, by an emerging trend among large Japanese investors.

EURUSD recovery extends to USD1.2945, as market covers short exposure after rumors swirl of decent demand interest placed between USD1.2900/1.2880. Offers noted between USD1.2955 through to USD1.2965. A break here can open a move on toward USD1.2980/85.

Pound pushes back above USD1.4520/25 and edges toward next band of resistance to USD1.4550. Above here and rate can push on toward USD1.4575.

EURGBP trade in Europe so far has respected the earlier Asian parameters of stg0.8885/0.8915, with rate currently trading on the base. Traders note that market wary of taking rate lower as Europeans continue to show buy interest on dips. UK inflation data will provide next directional indicator. A break below stg0.8885/75 can open a deeper move toward stg0.8860 ahead of stg0.8840. Resistance remains at stg0.8915/20 with stops above, which if triggered to open potential for a move toward stg0.8960/65.

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