Daily Forex Overview

Previous session overview

The euro fell against the yen and dollar in Asia Tuesday after a report in the U.K.'s Daily Telegraph about Germany's bad loan problems added to worries over the gloomy economic outlook in Europe, causing Japanese investors to sell the European currency.

The Daily Telegraph reported that Germany's financial regulator, BaFin, has warned that the toxic debts of the country's banks will blow up "like a grenade" unless they take advantage of the government's bad bank plans to prepare for the next phase of the crisis.

The report grabbed the attention of Japanese investors who had until then been focused on the U.S. economy, dealers said. They pushed the euro down by four-fifths of a yen to JPY132.05 from its levels in New York late Monday.

Tuesday's Asia session got off to a slow start, with many pairs continuing to trade in a tight consolidation range following the US holiday. But risk would quickly come off the table, as traders took the opportunity to take profits on recent gains. EURUSD felt the heat, with the pair barreling back through the USD1.40 handle to deal below USD1.3950.

The Pound was little changed with the market recovering from Asian losses during a quiet day of trade. Reports that China FX managers were вЂ'negative' on the Pound did little to dent the bullish tone the pair has recently developed.

The Australian dollar was weaker in Asian trade late Tuesday as the U.S. currency selloff of the past week eased to a halt amid thin volumes in foreign exchange markets.

Market expectation

The euro is lower with some U.S. dollar bids before a scheduled U.S. Treasury sale of two-year notes Tuesday.

Traders paused in the sharp selling of the dollar last week, which was prompted in part by worries about the longer-term sustainability of the U.S.'s triple-AAA credit rating.

For EURUSD Support seen placed toward USD1.3950, with stops positioned on a break of USD1.3940. A break here can open a deeper move toward USD1.3920 ahead of USD1.3900/1.3890. Offers USD1.3995/05, a break above may allow for a move back toward USD1.4020/25 ahead of USD1.4050/60.

Looking ahead, traders said the U.S. unit could face further downward pressure against the yen and the euro if demand for U.S. government bonds proves weak in the coming auctions.

Such results could fuel worries over Washington's ability to keep financing its ballooning budget deficit, dealers said. Concern could also grow that long-term U.S. interest rates - which move in the opposite direction from bond prices - would rise to the detriment of the nation's economy if demand for U.S. bonds falls, dealers said.

The greenback could then fall to a three-month low of JPY93.00. It may also slide as much as to USD1.4050 per euro, dealers said.

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