Daily Forex Overview

Previous session overview

The yen regained some ground against the dollar in Tokyo Tuesday as Japanese exporters and foreign hedge funds bought the currency on its lows.

These exporters were taking advantage of the cheaper yen, after it fell overnight, to boost their yen proceeds from products sold in dollars overseas.

The hedge funds and other short-term players were buying the Japanese unit for the dollar to lock in profits, dealers said.

Meanwhile, the dollar's broad weakness persisted, as players remained bearish on the funding currency amid a rally in global equity and commodity markets, dealers said.

Euro extended its recent rise to USD1.4246 against the dollar in European morning after the release better-than-expected German manufacturing PMI (39.6 versus forecast of 39.1) and the euro zone manufacturing PMI which also beat economists' expectations (40.7 versus 40.5). However, the euro retreated in New York Yesterday as the U.S. core PCE data, the major measure of U.S.

The Pound surged 200 pips to fall just short of the USD1.6200 level. Risk appetite has steadily increased and further gains cannot be ruled out. Nationwide house prices dropped -0.4% vs. -1.2% forecast. EURGBP kept to a tight range above 0.8700 with further drops likely.

The Australian dollar was higher in late Asian trade Tuesday as indicators continued to point to a recovery in the global economy. Stronger commodities prices and economic indicators from both Australia and offshore have supported the Australian dollar above USD0.80, traders said.

Market expectation

Such doubts about continued dollar weakness have turned many players' attention to the U.S. non-farm payroll report for May due Friday, dealers said. If it shows a worse-than-expected job market deterioration, that may benefit the dollar against currencies like the euro, they said.

But such a scenario could favor the yen even more, as it is considered an even safer asset. If a particularly bad figure were to "drag down" long-term interest rates and hit stocks, that could lead to some yen buying.

The euro faces a test of faith as the market waits to see if support around USD1.4035 will hold up. If so, investors could step in with long EURUSD positions, dealers said.

Fresh sell interest into early Europe has taken euro-dollar through overnight lows, touching USD1.4127 and currently trading around USD1.4137. Bids seen placed between USD1.4125/20, stronger around USD1.4100 with stops noted between USD1.4095/90. Through here and further demand seen at USD1.4070 ahead of USD1.4050 with USD1.4030 suggested as critical to keep current underlying positive tone in place. Resistance - USD1.4170/75, more toward USD1.4200.

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