Morning Forex Overview

Previous session overview
On Monday, the dollar slipped against its rivals, along with U.S. equities. The Greenback lost some ground as Oil advanced on news of hurricane Dolly in the Gulf. Bank of America results offered the Dollar and Stocks some support but enthusiasm waned and both lost ground into the US session close.

The Euro hit a record high against the Japanese Yen in the early US trading session. The euro appreciated against the U.S. dollar as the single currency tested offers around the USD1.5905 level and was supported around the USD1.5825 level. EURUSD ran into resistance in the 1.59 area and comforting BoA results helped the dollar to regain the intraday losses. EURUSD closed the session near the intraday highs at 1.5922, compared to 1.5847 on Monday.

Pound was able to recover off the lows of the day as markets digested comments from ultra dove MPC member Blanchflower that the UK was already in recession and news that HBOS share offering was severely undersubscribed. GBPUSD traded with a low of 1.9908 and a high of 1.9990 before closing the day at 1.9984.

USDJPY was the biggest mover of the majors, both down on the softer USD early and then back up again as risk appetite improved - the range was 106.37/107.15.

The Australian dollar was largely unchanged late Tuesday, as thin liquidity drove choppy price action, and as market participants await key inflation data due Wednesday.

Market expectation
The euro is facing major blockage at around USD1.5950 with various stop orders crowded around that level. Strategists noted that market is ignoring signs of firmness in the U.S. economy and warnings of euro-zone slowdown, while the focus centers on the ECB's hawkish rhetoric.

USDJPY rising but likely is stacked in tight band around 106-106.80 for now. Temporary rise above 107 yesterday suggested the downward trend may be over for now, but there are still many selling orders around current levels, and uncertainty remains. Focus now on further results such as Wachovia, Washington Mutual, after which players will shift attention back to economic fundamentals such as U.S. housing data due later in week.

AUDUSD losing ground as USD inches forward, but clear focus in coming 24 hours on another slew of U.S. earnings, followed by 2Q CPI due Wednesday. And Price action is expected to remain volatile.

Today, on the calendar is US weekly retail sales and the Richmond Fed manufacturing survey. The Europe calendar is thin.