Afternoon Forex Overview

Previous session overview

The rise in risk sentiment that followed Friday's better-than-expected U.S. non-farm payrolls proved short-lived, with the euro falling back from earlier highs and the dollar and the yen staging small rebounds Monday.

The pound, meanwhile, lost about a full cent against the dollar ahead of an unusually large amount of U.K. government bond coupon payments Tuesday.

The reversal in market sentiment emerged as it became clear that a rash of central bank policy meetings this week is unlikely to bring any rate rises. On the contrary, speculation persists that further quantitative easing will still be needed in many major economies.

Initial reaction to the U.S. payrolls figure illustrated that currencies continue to be driven largely by risk, with the dollar falling as investors moved out of safe havens.

The improved mood lasted right through Asian trading Monday, helped by the latest inflation measures from Australia that showed consumer prices rising by 0.2% last month. This contributed to the view that there is still some strength in the global economy.

The euro, which had shot back up over USD1.29 as risk sentiment improved, was soon struggling to retain its gains, despite upbeat weekend comments from European Central Bank President Jean-Claude Trichet that the probability of a double-dip recession the euro zone had fallen.

The yen, which as a safe haven came under initial selling pressure, staged a rebound both against the euro and the dollar.

Market expectation

Analysts suggest that the market is keen to test Japan's resolve on market intervention to stop the Japanese currency's recent advance.

Analysts noted some reluctance in the market to push the euro back to USD1.30, a key level that it hasn't traded above for nearly a month.

The dollar fell back to CHF1.0152 from CHF1.0168 while the pound fell to USD1.5372 from USD1.5470. Traders have suggested that sterling is suffering because the market faces GBP5.6 billion of gilt coupon payments Tuesday.

GBPUSD has been hit hard Monday however technical analysts looks for Fibonacci retracement support near USD1.5320 to hold. If it doesn't, then the bank sees risk toward USD1.5115 but if it does, then a retracement should find resistance at USD1.56.