Daily Forex Overview

Previous session overview

The euro fell further against the dollar and the yen in Asia Tuesday as regional stocks declined, prompting hedge funds to keep taking profit on risky currencies including the European unit.

The euro fell about half a cent to USD1.3853 overnight. It also lost more than one yen to JPY135.75 before recouping some losses.

U.S. and European hedge funds, some of which are set to close their books at the end of the month, kept offloading their holdings of currencies that many consider to be relatively risky, such as the euro, sterling and the Australian currency, dealers said. The sellers took a cue from weakness in Asian shares, which often knocks those currencies lower by chilling demand for risk, they said.

The Euro eased relentlessly to USD1.4000 support after the US jobs data changed the fortune of the dollar. EURJPY was very well supported though with the break higher on the USDJPY countering the major. A pullback after weeks of rallying is healthy for the uptrend with some looking for a break of USD1.3925 support.

In European morning session, the British pound remained under pressure against the greenback as Prime Minster Gordon Brown confronted a fresh attempt to force him out, after support for his ruling Labour Party in European elections plunged to its lowest level in a century.

The Australian dollar was weaker in late Asian trade Tuesday as the run up in shorter-dated U.S. Treasury yields that have increased speculation about possible U.S. central bank rate hikes prompted fears about the longevity of the so-called green shoots recovery.

Market expectation

The euro faces the risk of falling to USD1.3500 in the near-term, although it may lose a sense of direction once the current rounds of position adjustments run their course, analysts added.

Some dealers noted that Standard & Poor's move Monday to downgrade the sovereign credit rating of Ireland continued to weigh on the euro, while others brushed off the event as too old.

The euro, Swiss franc and U.K. pound are tipped as buys against the dollar later on Tuesday, as the dollar's current run higher runs out of steam.

Markets reported to have been thin overnight, with the downside pressure squeezing out some of the weaker spec longs. EURUSD recovered ahead of the European open, with demand able to lift rate toward USD1.3900. Failure to break above this level currently sees rate trading back around USD1.3875. Bids seen placed toward USD1.3850, more around USD1.3840 with stops below, which if triggered to bring Monday's lows at USD1.3806 back into focus. Bids noted between USD1.3810/00, more between USD1.3795/90 with stops below. Resistance seen placed between USD1.3895/05, more toward USD1.3920 ahead of overnight highs at USD1.3938.

EUEGBP traders note that Monday's extended pullback found support at stg0.8646, the level corresponding to a 76.4% retracement of the rally from stg0.8578 to stg0.8866. Bids noted from this level to stg0.8640 with stops below, which iof triggered to open a deeper move toward stg0.8625/20 ahead of stg0.8605/00. Resistance noted at stg0.8670/75.

Analysts say much of the political uncertainty in the U.K. has now been priced into the market, and the reasons that had previously sent the pound to 2009-highs still exist.

Meanwhile, disturbing euro-zone developments, such as currency and banking fears in Eastern Europe and the Baltics, are mostly under the surface.

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