Daily Forex Overview

Previous session overview

Rallying equities and commodities markets pushed up currencies that benefit from increased risk tolerance such as the euro and U.K. pound to multi-month highs against the dollar and yen in Asia Tuesday.

Markets are getting a lift from the perception that the global economy is recovering, and unless new signs appear that dispel such views, the dollar and yen will likely remain weak, traders said.

The pound rose to USD1.7004 against the dollar, its highest level since Oct. 21, and JPY162.23 against the yen, the highest since June 12. The euro strengthened to JPY137.70, its highest level since June 15.

In addition, the New Zealand and Australian units hit multi-month highs against the yen and dollar.

The dollar, meanwhile, was unchanged against the yen, but is expected to rise because the Japanese currency is usually the weakest unit when risk appetite increases.

The EURUSD rose to as high as USD1.4444, before closing at USD1.4421. This was the USD's weakest rate against the European currency since the middle of December last year. The Dollar fell by about 250 pips vs. the British Pound to USD1.6980.

The GBPUSD pair rose by over 250 pips in Monday's trading to the USD1.6980 level. This may also have been helped as the USD may have come under increasing pressure from the rise in Oil and other commodity prices. The EURUSD cross climbed by 190 pips to USD1.4421, the highest level since December 2008, just weeks after the collapse of Lehman Brothers.

The Australian dollar was firmer late in Asian trade Tuesday but off a 10-month high hit earlier in the session as pared back interest rate hike expectations eroded gains made on the back of another firm rally in risk-proxy assets. The pull back in the currency from its recent peaks is expected to continue in the session ahead, with the run up in equities and commodities markets now showing signs of cooling.

Market expectation

The euro, yen, dollar and U.K. pound are trading little changed against one another as dealers step aside to see if stocks can resume their rally after an expected consolidation on Tuesday.

The EURUSD move above its recent June high of USD1.4338 will likely keep the greenback weak for now as investors are forced to bail out of dollar longs in the near-term. The continued rise in equity markets will keep safe-haven currencies like the dollar and the yen under pressure for the time being, said analysts.

GBPUSD touched a high of USD1.7005 before quickly reversing, the snap back prompting profit take sales that took rate back to USD1.6924 ahead of the European open. Interest to buy on dips into Europe has seen rate recover again, this time to USD1.6967 at writing with underlying tone remaining firm. Resistance noted between USD1.6975/85 (61.8%/76.4% USD1.7005/1.6924), a break above to open a retest of the area between USD1.7000/05. A break above USD1.7010 may open a move toward USD1.7030/35 ahead of USD1.7050/60 (USD1.7055 1.618% based on pullback from USD1.7005 to USD1.6924). Support remains ahead of USD1.6920, more at USD1.6900 and USD1.6885/80.

One focus for the Asian markets will be the Reserve Bank of Australia's policy statement due out around 0430 GMT. Australian central bankers are expected to signal an end to further interest rate cuts. If the RBA statement is more hawkish than expected, it could lead to further buying of risk currencies such as the Australian dollar, traders said.

Some traders said that the Australian dollar's bullishness in spite of unexpectedly weak retail sales data underlines how much risk appetite has returned to the market.

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