Daily Forex Overview

Previous session overview

The South Korean won plunged against the U.S. dollar Monday after North Korea apparently conducted a nuclear test, but market players said that once the dust settles the Korean currency may recover.

Indeed, the Japanese yen hardly moved on the news reports despite the country's geographic proximity to the Korean peninsula, partly because Tokyo traders weren't entirely surprised by the development following Pyongyang's recent missile test, traders said.

Against the yen, the U.S. unit was at JPY94.63 as of 0400 GMT, lower than JPY94.85 on Friday but little changed from around JPY94.60 before the North Korean news reports came out.

Other Asian currencies fell, however, and analysts said the key for markets was how the U.S. in particular reacted to the reports.

The Euro break above USD1.4000 was relatively calm with the market not ready to push further without extra stimulus. The move higher was aggressive during the week and could be in store for consolidation if the AAA story fades from view.

Pound retreated briefly from its Asian high at USD1.5898 to USD1.5757 against the dollar in European afternoon due to rumors that U.K. GDP data could be worse than market expectation, the data came in line with forecast of -1.9% Q/Q and -4.1% Y/Y. Cable then found renewed buying from there on dollar's weakness elsewhere and rallied to a new 2009 high of USD1.5947 on Friday.

The greenback fell against the Canadian dollar to the lowest in more than seven months at USD1.1187 against the loonie as Canada's retail sales rose for a third straight month in March (+0.3% vs market expectation of 0.5%).

Market expectation

Global markets shifted into risk aversion mode following the (North Korea) reports with most currencies giving up some gains against the U.S. dollar, said analysts.

But some investors may look at the dollar's rebound as a good place to sell.

Some traders said low trading volume due to a holiday in the U.S. and U.K. Monday could exaggerate market moves, possibly causing the U.S. currency to fall below JPY94.00 later in the global day amid concern about the U.S. economic outlook.

The EURUSD has been experiencing some very bullish behavior in the past week, as it currently stands between the 1.3900-1.3950 levels. The main oscillators of the daily chart indicate this trend may continue into the near future. However, the 4-hour Slow Stochastic reveals that a bearish cross is about to occur anytime soon, indicating that a bearish correction may be imminent. Now may be a ripe time to take advantage of the situation at an early stage.

There is still some fear that Moody's or Fitch will use this week's New Zealand budget as a catalyst for a ratings downgrade, some analysts believes a fiscally responsible and relatively austere program will be presented. If so, forex markets will find the technical rationale for a stronger NZD compelling, they say. The house favors buying NZDUSD on minor dips below 0.62 cents, risking a slide to 0.6070 but targeting 0.66. The pair is currently at 0.619 to 0.620.

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