Monday, July 4, 2011

Forex Morning Overview - July 4, 2011

Previous session overview
The euro fell against its counterparts in Asia on Monday after Standard & Poor's Ratings Services warned that a debt rollover plan for Greece could amount to a default, though traders said the common currency will remain supported by expectations that the European Central Bank will hike rates this week. 

In remarks released Monday afternoon in Tokyo, S&P said the rollover plan, a leading proposal for easing repayment terms on Greece's sovereign debt, would constitute a default under the ratings firm's criteria. The notice from S&P didn't alter Greece's rating, which remains at CCC after a June 13 downgrade. 

The euro had been up against its rivals before the remarks, but quickly relinquished its gains, dropping around 40 pips to fresh intraday lows at USD1.4510 and JPY117.12. The falls came amid thin trade that was expected to dry up even further later in the global day due to the U.S. July 4 holiday, dealers said. S&P's warning echoed views already heard in the market, so likely did not present a longer term threat to the common currency, they said. 

The euro was at USD1.4527 at 0550 GMT compared with USD1.4531 late Friday in New York. It was at JPY117.29 compared with JPY117.47. 

The dollar was at JPY80.74 compared with JPY80.80. The ICE Dollar Index, which measures the greenback against a basket of currencies including the euro and yen, was at 74.274 compared with 74.178. 

The Australian dollar gave back nearly all of a late Friday and early Monday gain on signs of economic weakness in the country. 

Just a day before Australia's central bank is set to decide on interest rates for July, two sets of data on Australian consumer demand disappointed to the downside. In the reports, May retail sales slid 0.6%, while building approvals declined 7.9% in the month. At 0610 GMT, the Australian dollar was at USD1.0720, up from USD1.0712 late Friday. Still, the currency had reached as high as USD1.0787 in early action Monday after euro-zone governments over the weekend agreed to pay Greece the next tranche of last year's bailout package.
Market expectation
Traders said the euro has a positive bias this week ahead of the ECB meeting Thursday, at which the central bank is widely expected to raise its key policy rate to 1.50% from 1.25%.

The single unit could be propelled higher later in the global day if it breaks the USD1.4600 level, due to an accumulation of stop-loss buying orders there, dealers said. 

It could test the USD1.4700 and USD1.4800 levels in coming sessions, if global investors' risk sentiment remains relatively firm and no further surprises emerge on Greece, said analysts.

European stocks are expected to edge higher at the open Monday, taking their cue from positive sessions in the U.S. and Asia, as fears over the situation in Greece recede after euro-zone finance ministers approved the country's next tranche of aid.

For the week ahead, the focus in the U.S. will be on Friday's nonfarm payrolls, dealers say. Expectations will be refined over the week, with ISM nonmanufacturing out Wednesday and ADP employment released Thursday. The focus in Europe will be on Thursday's ECB policy meeting, with the market fully priced for a 25 basis-point rate hike, dealers said.