Morning Forex Overview

Previous session overview

On Monday, the dollar posted steep gains against the euro, the yen and the Swiss franc amid optimism that a broad-based U.S. economic stimulus plan will help jump-start growth.

Investors were impressed by the size of the tax break, about USD300 billion, which was contemplated by President-elect Barack Obama and congressional Democrats as a way to create jobs and pull the U.S. economy out of recession.

The Euro fell heavily as resistance at USD1.3800 gave way and some negative news emerged. EURUSD broke below trend line and Fibonacci support at USD1.3848 to settle above the next level of support at USD1.3550 at the end of the day.

Pound release of weak UK housing data from the Nationwide had a slow initial effect on cable, the rate dropping from around USD1.4610 through the figure before momentum was boosted on the break of USD1.4590 which took rate through earlier Asian lows of USD1.4568 and on to USD1.4553.

The Japanese Yen continued to test the upside against all crosses as more risk taking entered the market and investors flooded back to high yielding currencies.

The Australian dollar was marginally firmer in Asia late Tuesday, propelled higher by a continued across-the-board improvement in commodities prices and paring back of risk aversion.

Market expectation

The euro is lower against the dollar and the yen Tuesday. Dealers said selling against the yen led to the lower EURUSD as well.

EURUSD - If there was a barrier at USD1.3500 it has now been taken out with the move to USD1.3498 (given), with reported stops sub USD1.3490 now seen in sight. A break here to open a deeper move toward USD1.3470, with bids suggested to be placed from this level, through to USD1.3450.

USDJPY demand said to be coming from well-respected accounts on this latest move higher in USDJPY. Offers around JPY93.50/60 so far untested, becoming stronger into JPY93.80.

GBPUSD trades around USD1.4590. Support remains at USD1.4550 (USD1.4547 61.8%USD1.4428/1.4740), a break and clear to open a deeper move toward USD1.4500. Resistance placed at USD1.4600, USD1.4620/25, and USD1.4650.

As investors turned their eyes back to fundamentals amid speculation that the European Central Bank is behind the curve in cutting rates, the euro may face further downside over the next few months.

Most important events of the day