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Daily U.S. Forex Summary

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The US dollar remained under pressure against a basket of major currencies

Wed, May 7 2008, 05:55 GMT
by Union Bank of California Team

Union Bank of California

The US dollar remained under pressure against a basket of major currencies after Fannie Mae (the largest provider of U.S. home financing) reported its third straight quarterly loss. Despite the negative figures, the dollar held within a tight trading range against its European counterpart. Look for the dollar to remain within a tight range ahead of releases from key European central bank meetings due out on Thursday, as well as, U.S. pending home sales, unemployment figures and trade deficit figures due out later in the week.

The Euro pushed higher against the greenback after the release of stronger-than-expected Euro Zone service sector data. The data sighted that the RBS/NTC services PMI showed an increase to 52.0, slightly above expectations for a release of 51.8. With record high oil prices persisting and supporting inflationary concern, look for the European Central Bank to hold rates at 4 percent when it meets on Thursday.

Sterling pushed lower after the release of service sector data came in weaker than expected. The Chartered Institute purchasing managers' index fell to 50.4 from 52.1 seen in March. The market will turn its focus to Thursday’s interest rate policy meeting, where expectations remain that the Bank of England (B of E) will hold rates steady at 5 percent. Analysts will be closely watching any accompanying statements as it becomes increasingly clear that the B of E will have to start cutting rates in the near future.

With Japan on holiday for a second day in a row, the Japanese yen remained range bound, but found support in the low 104 range. With little data due out of Japan this week, look for USD/JPY to remain range bound trading between 104.15 to105.50.

The Canadian dollar remained supported, but off earlier highs after the release of domestic building permits showed a drop of 4.5 percent in March from February, compared to market expectations for a 1.4 percent gain. With oil however, reaching a record of $120 a barrel yesterday, look for the loonie to remain underpinned. This week the market will also await the Ivey Purchasing Managers Index and April housing starts on Thursday with the key April employment report and international merchandise trade data due out on Friday.

The Australian dollar initially came off a two-week high after the Reserve Bank of Australia announced that it would hold its key cash rate at 7.25 percent, but soon rallied in North American trading as gold pushed to record highs touching $882.40 an ounce. Despite the less than hawkish comments from RBA, reiterating that there monitory policy was appropriate, the Aussie managed to push higher on the back of higher commodity prices. Look for Aussie to continue to take its cues from record commodity prices as oil and gold push to record levels.

The New Zealand dollar initially tracked its Aussie counterpart and remained under pressure after RBA’s decision to leave rates on hold, but soon after rallied as the carry trade took focus once again. The market will look towards Thursday’s first-quarter jobs release, as well as, retail sales data due out next week for further direction in to the NZD/USD currency pair.

Published on  Wed, May 7 2008, 05:56 GMT