Daily Forex Overview

Previous session overview

Sluggish Asian share markets curbed currency dealers' risk appetite in Tokyo Wednesday, forcing them to sell the dollar against the safer-haven yen to levels slightly lower than in New York overnight.

Any weakness in European and U.S. equities later in the global day may put further downward pressure on the dollar and euro against the Japanese currency, dealers said.

As the Nikkei 225 Stock Average and the Shanghai Composite slumped in morning trade, short-term foreign exchange market investors sold the greenback and common currency to buy back the yen, traders said.

EURUSD advanced on Tuesday, recovering from multi-week low of USD1.4045 as the German ZEW sentiment index improved by more than expected in August, giving further credence to euro zone's economic recovery following the upbeat GDP data from Germany and France last week. The ZEW index for Germany rose to 56.1 in August from 39.5 in July.

The British pound rose after inflation data beat estimates, which unexpectedly held at 1.8 percent in July. The Bank of England indicated last week that rates will not be raised for some time.

The Australian dollar was marginally firmer late in the Asian session Wednesday, having shed most of its earlier gains on the back of a sharp selloff in Chinese equities. The currency's moves are still very much driven by ebbs and flows in risk appetite and of late sharp daily falls in the Shanghai Composite Index have affected the local dollar.

Market expectation

Major currencies are trading narrowly against each other on Wednesday, with no significant patterns developing so far, as traders struggle to find intraday plays after the big moves on Tuesday. One possibility making the rounds is a long euro play against the U.K. pound.

European stocks are expected to open with the major indexes flat Wednesday after a mixed session so far in Asia even though Wall Street closed higher.

Macro sales of cable were linked to initiating spec sales, the weight taking it through early lows at USD1.6545 and on to USD1.6511 ahead of the European open. Downside pressure continued into early Europe, further sales extending the correction to USD1.6455. Support noted toward USD1.6450 (76.4% USD1.6406/1.6594), a break here to allow for a deeper move toward USD1.6410/00.

For the late global day trade in Europe and the U.S., the dollar is likely to continue tracking share markets in a narrow JPY94.00-JPY95.00 range, analysts said. For the rest of the week they said expect the dollar to trend down slightly against the yen amid more realistic expectations for the global economy.

Doubts over the speed of any economic recovery could grow further if U.S. weekly jobless claims Thursday and existing home sales for July disappoint expectations, dealers said.

Economists surveyed on average expect weekly jobless claims to fall to 550,000 from 558,000 in the previous week, while existing home sales for July to rise to 5 million.

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