Daily Forex Overview

Previous session overview

The euro rose against the U.S. dollar and the yen in Asia Monday, driven by an uptick in risk appetite across global markets, but further gains may be limited by uncertainty ahead of a key meeting of the European Central Bank later this week.

The European currency and others like the Australian and New Zealand dollars offer higher interest rates than either the greenback or the yen, and are often in demand when sentiment improves in global markets.

On Friday, EURUSD basically developed a sideways trading pattern. This shouldn't have come as a big surprise as most markets in Europe were closed while staffing on a lot of trading desks elsewhere in the world was thinner than usual. EURUSD traded with a low of USD1.3228 and a high of USD1.3329 before closing at USD1.3265.

Sterling strengthened against both its US and European counterparts on the heels of better than expected UK manufacturing data. The CIPS manufacturing purchasing managers' index improved to 42.9 in April from 39.5 in March.

The Japanese Yen continued to weaken as the USDJPY reclaimed the JPY99 level and most of the crosses led by GBPJPY and AUDJPY grinded higher. Optimism and weak Japanese data providing the motivation.

Firmer risk appetite and regional equity markets pushed the Australian dollar to seven-month highs in Asia Monday, though a raft of disappointing data reminded that the brunt of Australia's economic slowdown has yet to be felt.

Market expectation

The euro continues its recent rebound as stock markets continue to roar higher.

Cable seen tracking moves in other currency pairs on the better risk appetite theme in Asia. This supply was easily eroded, with traders noting stops going off through USD1.4960 as gains were extended to USD1.4987. Pullback from best levels initially contained around USD1.4945, with cable then easing back towards the lows late in the day, heading into European dealing around USD1.4950. Trade in euro-sterling described as muted, with the cross contained to a tight stg0.8887/0.89105 range, still holding tight around stg0.8900 in recent dealing, with opening trade described as quiet on the UK public holiday. Some stop interest reported through USD1.5000, with a break seen exposing a move towards the April highs just shy of USD1.5070. Downside seen as the main area of risk in the cross, with stops still noted on a break of stg0.8880.

USDJPY seeing little movement in the holiday-thinned European session so far, still contained within the Asian range. Topside stops said to come in from JPY99.65, scattered to JPY99.80, more at JPY100.01 from US names, prompting light talk of short-term barrier interest at JPY100.00. Expiry interest also noted at JPY99.50 for the NY cut. Technical outlook seen as positive following last week's break above the 21-day moving average, with the 10-day momentum moving into buy territory.

Some currency watchers see the pound's recent gains as enhancing the chances of an imminent re-test of the USD1.5000 mark. That level has stymied several previous pound sterling rally attempts since early January.

Trading volumes in both currency and interest rate markets were thin with Japan closed for Golden Week holidays and as traders await guidance from Tuesday's monthly Reserve Bank of Australia policy meeting, along with a slew of domestic data scheduled for release in coming days.

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