Daily Forex Overview

Previous session overview

A weak tone in the Japanese share market fueled risk aversion and caused the dollar to fall slightly against the yen in Asia Friday, though trading was subdued ahead of anxiously-awaited U.S. jobs data later in the day.

Speculation that the employment figures might be worse than expected, because other recent U.S. data have been disappointing, also weighed on the dollar against the euro, traders said.

Euro declined to as low as USD1.4328 against the greenback in New York afternoon despite hawkish comments from ECB President Jean-Claude Trichet. The European Central Bank kept interest rates unchanged at a record low of 1.0% as widely expected.

The British pound fell after the Bank of England left rates at a record low 0.5 percent and unexpectedly increased its asset-purchase plan, indicating that financial conditions remain weak. Recent sterling strength has been boosted by positive domestic data such as manufacturing, consumer confidence, retail sales, and house prices.

The Australian dollar was weaker in late Asian trade Friday as expectations for local interest rate hikes moderated on the back of updated economic forecasts from the Reserve Bank of Australia.

While the central bank's August quarterly statement on monetary policy clearly places the prospect of interest rate hikes on the horizon, market pricing for imminent tightening has been extremely aggressive, with analysts saying a pull back in this pricing has been due for some time.

Market expectation

While the majors are trading in narrow ranges Friday, traders appear ready to test EURUSD and GBPUSD lower to create entry points for their next rallies.

Weak U.S. jobs figures could also push the euro toward USD1.4400, traders said.

But against the yen, the euro might fall if the American employment data are unexpectedly bad, as a poor result could aggravate risk concern and turn players away from the risky euro toward the safe-haven Japanese currency. That might also give the market an excuse to take profits on the European currency, which has risen sharply recently.

European stock markets are expected to open lower Friday, with investors ending the week in a cautious manner ahead of the key monthly employment release in the U.S., an important gauge of the strength of the world's largest economy.

EURGBP trade in Asia was contained within a range of stg0.8552/68, with early Europe able to extend the base to stg0.8547 only to snap back toward overnight highs. Offers noted toward stg0.8570, with further interest seen extending, and strengthening, toward stg0.8580/85. Support noted at stg0.8545/40, a break to allow for a deeper move toward stg0.8525/20.

Recovery in Asian equities eased the downside pressure with GBPUSD able to recover back to USD1.6794, currently holding around USD1.6765 in early European dealing. Offers seen placed between USD1.6795/00 (USD1.6797 76.4% USD1.6813/1.6744), a break to allow for a retest on USD1.6813, with offers seen to USD1.6820/30 (USD1.6825 initial react lows Thursday). Above here and rate can edge on to USD1.6850. Bids now seen placed at USD1.6745/35, with stops on break of USD1.6730. Stronger support noted toward USD1.6700, with demand seen placed to USD1.6690.

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