Daily Forex Overview

Previous session overview

The yen advanced against the dollar and euro in Asia Monday as players took profits on riskier currencies, taking cues from lackluster Japanese stock markets while adjusting positions before the coming Federal Reserve policy meeting.

The yen rose about a third of a yen to JPY95.78 from New York late Friday. The unit also gained almost one yen to JPY133.17.

Japan's benchmark Nikkei 225 Stock Average index fell into negative territory several minutes after it opened up. That prompted short-term investors to cut exposure to currencies that are considered riskier than the yen, including the dollar and the euro, dealers said.

Euro rose versus the U.S. currency as a batch of recent upbeat data boosted hopes that global economy is on the path to recovery. As the risk appetite of investors improved, euro jumped to an intra-day high of 1.4013 versus the greenback at the close of European session before retreating partly due to the selloff in crude oil prices.

The British pound pushed higher despite the release of weak UK retail sales data and after minutes from BOE's last policy meeting confirmed a unanimous vote to keep rates on hold at 0.5 percent.

The Canadian dollar pared gains against the greenback after government data showed retail sales falling 0.8 percent in April. The loonie did manage to hold on to its recent levels as oil held close to USD72 a barrel.

The Australian dollar fell in Asia Monday and is tipped to drop further as traders unwind expectations for interest rate hikes, while longer dated government bond prices led a sharp rally in interest rate futures.

Market expectation

The euro is lower against the U.S. dollar and the Japanese yen, but overall the currency majors are sticking to tight ranges. All eyes are on Germany's June Ifo business climate index, due later, with no major U.S. data on the slate.

Pound clears below the Asian base at USD1.6447, the rate dropping to USD1.6415 as euro-sterling snaps back from early lows of stg0.8423 to stg0.8435. Cable currently holds back around USD1.6425. Support now seen placed from that USD1.6415 level, with stronger interest earlier noted toward USD1.6400. A break here can open a deeper move toward USD1.6380 ahead of USD1.6360/50.

EURUSD drifted lower again, getting an added nudge lower into early Europe which has seen rate probe below the Asian base to USD1.3880 at writing. Demand seen placed to USD1.3870, a break below to open a deeper move toward USD1.3850 (USD1.3849 61.8% USD1.3748/1.4013), USD1.3825/20 ahead of USD1.3810/00. Offers seen placed at USD1.3920, more toward USD1.3960.

European stocks are expected to open just lower Monday, as bulls start the week on the back foot amid doubts about the strength of any potential global economic recovery.

Analysts said that Australian dollar may struggle to hold above the USD0.8000 level in the near term, partly on the paring of rate hike views, but also as the domestic economy may yet show signs of renewed stress as the effects of fiscal stimulus wears off.

Market participants are particularly interested in what the Fed may have to say on the U.S. economic outlook, the bank's policy stance and recent rises in U.S. Treasury bond yields.

If the Fed decides to buy more U.S. Treasury securities, that could hurt the dollar versus the yen and euro by raising concern over problems that could stem from the central bank's further financing of government deficit.

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