Daily Forex Overview

Previous session overview
On Thursday, the dollar was little changed against the euro after the ECB's Trichet held firm to his previously expressed worries over inflation and the possible need to raise interest rates.

US initial jobless claims fell 18k to 365k last week, maintaining the recent see-saw pattern. The trend seems to have settled around 370k new claims per week, consistent with ongoing payroll job losses.

The European session was dotted with disappointing German trade and factory activity data. The industrial production number for March proved to be the most discouraging with a 0.5 percent contraction that met expectations for the sharpest contraction in 11 months - helped specifically by a remarkable 12.3 percent tumble in construction activity. Aside from these indicators, top event risk was naturally the ECB rate decision.

The Euro rebounded as the ECB kept rates on hold at 4.00% and signaled that policy makers were still committed to fighting inflation. EURUSD traded with a low of 1.5284 and a high of 1.5442 before closing the day at 1.5401 in the New York session.

The British pound managed to hold above the 1.95 level on Thursday as the Bank of England left rates steady at 5.00 percent. The move was in line with expectations, but given the continued deterioration in UK economic data, there had been some speculation that the Monetary Policy Committee would vote in favor of a 25bp cut. GBPUSD traded with a low of 1.9504 and a high of 1.9621 before closing the day at 1.9551 in the New York session.

U.S. currency fell against JPY sharply from 104.95 to 103.40 on active cross buying in JPY due to the concerns of slowing global growth.

The Australian Dollar was boosted by strong jobs data in Thursday, despite the Unemployment rate rising from 4.1% to 4.2%.

Market expectation
The euro is little changed against the dollar Friday and slightly lower against the yen, as markets continue to react to the European Central Bank's somewhat hawkish stance.

European policymakers agree that the euro's strength relative to other world currencies is a question of balance.

Trichet's comments may have lowered speculation of a near-term rate cut, but European economic indicators are weakening and should this continue. This will inevitably lead to renewed speculation of a rate cut toward the year end. Next week, players will be back to checking U.S. and European economic fundamentals.

USDJPY falls below 103.50 as short-term players sell and support is around 103.20. Next moves will likely depend from developments in the stock market.

With the economic data agenda empty, traders watched crude oil futures touch a new all time high of 124.70 based on supply concerns.