Daily Forex Overview

Previous session overview

The euro rose slightly against the yen and dollar in Tokyo Thursday as players bargain-hunted the European unit after its overnight fall, but dealers said it was unlikely to rise much further in the coming days.

Some players sold the dollar for the euro in reaction to a Wall Street Journal story saying that Malaysia and China are considering phasing out the use of the dollar as their trade settlement currency, some dealers said.

Also helping the euro was more dollar-negative sentiment triggered by U.S. Federal Reserve Chairman Ben Bernanke's overnight warning on the ballooning U.S. budget deficit, dealers said.

Euro rose to a marginal high of USD1.4339 against the greenback in Asian afternoon. Euro zone service PMI data came out at 44.8 in May, which was slightly better than the reading of 44.7 in April.

Sterling cut recent gains against the USD, though it climbed to 6-month highs against the euro after unexpectedly strong data on the services sector bolstered hopes for the economy. The purchasing managers' index for the UK services sector surprised with a jump into positive territory that was well above forecasts and showed growth in activity for the first time since April 2008.

The Japanese Yen couldn't hold on to the JPY96 level on the USDJPY as USD weakness intensified in the European session. Crosses remained buoyant but experienced waves of profit taking as the market becomes use to the new levels.

The Australian dollar was buffeted Thursday by news of a sharp deterioration in the country's trade balance in April, signaling the economy's continuing vulnerability in the face of the global economic downturn.

Market expectation

Dealers said that ahead of a rate announcement from the European Central Bank expected at 1145 GMT the euro would likely stick to a narrow range as players, who widely expect no rate cut, await word on any further quantitative easing measures. Any further gains on position adjustments would likely be capped around JPY137 and USD1.4250.

Looking ahead, the euro is likely to be weighed by any retreat in the recent rally in global equity and commodity markets, dealers said. While the view is gaining strength that the economy has started recovering on a global scale, which is supportive of stock prices.

Major Asian EURUSD account citied for providing the early demand interest which has lifted euro-dollar back above USD1.42. Rate trades to USD1.4210, extending the overnight recovery highs of USD1.4192. Rate currently trades around USD1.4197. Offers now seen placed at that extended high of USD1.4210, more between USD1.4220/25 ahead of USD1.4250.

Pound recovered off lows but initial failure to push back above USD1.6250 led to a retest of lows before secondary bounce proved stronger. Rate pushed through USD1.6250, with momentum into early Europe able to take it on to USD1.6298. Rate currently trades around USD1.6290. Offers seen placed to USD1.6300, more between USD1.6310/20 with stops above. Further offers then noted between USD1.6340/50. Support USD1.6255/50, stronger between USD1.6210/00. Focus on today's BOE rate decision at 1100GMT, though no rate change expected.

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