Tuesday, July 5, 2011

Forex Afternoon Overview - July 5, 2011

Previous session overview

The dollar is broadly stronger as investors seek safety from over credit risks in China and disappointing economic data out of Europe. Moody's says a Chinese government agency might have understated banks' loans to local government, which could pose a threat to the country's banking system. 

Meanwhile, growth in the euro zone's private sector fell to its weakest pace in more than a year and a half and retail sales slumped. In early NY trading.

The euro is at USD1.4468 from USD1.4540 late Monday. The dollar is at JPY81.08 from about JPY80.77.

European June services PMIs generally disappointed, with the euro-zone print coming in at 53.7 from 56.0 previous while euro-zone May retail sales were close to forecast down 1.1% on the month. The UK services PMI sprang a surprise at 53.9 vs 53.5 expected.

GBPUSD added one cent to USD1.6128, with the last 60 ticks courtesy of the PMI. The big mover of the day was CHF, which benefited from a safe haven bid and a big corporate buyer. EURCHF shed 1% to CHF1.2206, while USDCHF printed a low of CHF0.8429 from CHF0.8508.

The Canadian dollar was weaker early Tuesday, as investors moved out of higher-yielding currencies and bought the U.S. dollar. The U.S.dollar strengthened to CAD0.9631 from CAD0.9611 late Monday.
 
Market expectation

Euro weakness is unlikely to relent ahead of Thursday's European Central Bank rate decision, unless there is another significant change in sentiment in regards to the questions arising over Greece, coupled with contagion concerns that are rapidly spreading to Italy, analysts said.

GBPUSD will certainly face a sharp selloff, and the exchange rate may fall back towards USD1.5750, the swing low from back in January, as the central bank opens the door for an even longer period of monetary support, comment dealers.

EURGBP currently showing strong bearish tendencies, further support under its current low is listed at GBP0.8977 (10-Day MA), GBP0.8967 (Daily Low Jun 29) and GBP0.8928 (Daily Low Jun 28). In the case of a reversal, resistance is placed at GBP0.9076 (21-Day Upper Bolli), GBP0.9084 (Daily High Jul 1) and GBP0.9135 (High Mar 10 2010).