The Dollar Slightly Lower In The Overnight Session
Overall, most currency pairs reversed direction as the dollar weakened slightly overnight, giving back some the recent gains, as the market gets ready for important economic releases over the next two days.
The Euro (Eur/Usd) advanced near TheLFB R1 during the European session, after it was range-bound during the Asian session. As the market prepares for the ECB meeting, the euro gained 45 pips. The bank is expected to hold the overnight rate steady at this meeting, but opinions vary over what the bank should do next, some saying the bank will have to cut rates, others say raise.
The Pound (Gbp/Usd) gained 125 pips and is now testing the first resistance level. The pair has fallen, over the past 7 days, nearly 1000 pips, as the market sees the central bank trying to assure growth rather than fight inflation. However, analysts expect the Bank of England to keep the overnight lending rate at 5.0% later this morning.
The Aussie (Aud/Usd) gained 40 pips during the overnight sessions and is now trading near the high of the previous day. During the last few days, the aussie weakened reflecting the sell-off in the commodity markets.
The Cad (Usd/Cad) extended yesterday's downward trend. The pair moved sideways during the Asian session, but during the European session, fell 70 pips in a short time span, something that rarely happens overnight.
Currencies: EUR/USD Nears Key Support Levels Going Into the ECB Meeting
On Wednesday, the dollar again started the session on a strong footing. Ongoing tensions in Asian markets spurred more save haven dollar buying and the oil price was also still downward oriented even if the pace of the decline was much slower than on Tuesday. The European data (especially the retail sales and the Q2 GDP data/details) are not really market movers, but confirmed that the European economy is heading for a material slowdown and this was no help for the single currency. So, after declining to the low 1.44 area in Asian trading, EUR/USD set a new reaction low (1.4385) in Europe after the publication of the European data.
The US traders joining the price action this time didn't provide any new impetus. Oil stabilized and also the US data (factory orders) were not able to change the course of events. So, the dollar momentum eased and EUR/USD fell victim of profit taking.
The correction was again more or less in line with a (albeit very moderate) rebound in the oil price. Later in the session, a soft Fed Beige Book was also a good excuse to cash in some gains on recent USD gains ahead of today's ECB interest rate decision. EUR/USD closed the session at 1.4409, compared to a close of 1.4520 on Wednesday.
Sunrise Market Commentary
US Treasuries eke out more gains on technical groundsTreasuries digested well Tuesday's steep gains and closed higher on Wednesday, as technical buying occurred after the break below 3.76% of the 10-year yield. The profit taking in Asia might remain the theme today, as some more neutral positioning ahead of the release of the payrolls look sensible.
Trichet to downplay decline in headline inflationToday, the ECB is widely expected to leave rates unchanged at 4.25%. During the press conference, we expect Trichet to downplay the recent decline in headline inflation, as the threat of second round effects still looms.
EUR/USD nears key support levels going into the ECB meetingThe dollar continues to be well supported but gradually faced some profit taking later yesterday as key (USD) resistance levels are lining up and as the decline in the oil price slowed. Today, currency markets will also look at the ECB press conference but we don't expect this event to yield a lasting support for the single currency.
