Afternoon Forex Overview

Previous session overview

The Canadian dollar gained against its U.S. counterpart Wednesday, after the Bank of Canada announced its third-consecutive interest rate increase.

The Bank delivered a cautious tone as it announced the 25-basis-point rate increase, saying, "Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook."

The rate increase hoists the Bank's overnight target rate to 1.00%.

In June, the Bank of Canada became the first central bank in the Group of Seven industrialized nations to raise interest rates since the global economic crisis took hold two years ago.

The U.S. dollar was at CAD1.0426 following the announcement, from CAD1.0490 just before. It was at CAD1.0475 late Tuesday.

Separately, the dollar fell to a fresh 15-year low against the yen overnight before rebounding slightly Wednesday as investors brushed aside an escalating war of words by Japanese officials directed at the rising yen.

The dollar fell to a low of JPY83.34, compared with JPY83.80 late Tuesday in New York before retracing some of its losses.

EURUSD ticking higher as US stocks post opening gains. Pair trades at USD1.2715 from USD1.2689 late Tue. Successful Portuguese government bond auction also offered some support to EUR, but lingering concerns over the credibility of European bank stress tests will keep EURUSD's gains capped over the near term, analysts said.

Market expectation

The euro fell earlier to a new record low against the Swiss franc, CHF1.2764. It's targeting monthly support at CHF1.2650. But a move above CHF1.2850 would, instead, be the signal for a rally to CHF1.2942, said technical traders.

On the near term EURUSD remains biased to the downside. Although the pair is being threatened by the bears nearer term and now looks to target the USD1.2624 and the USD1.2586 level, its Aug 24'10 low, its overall short term uptrend triggered from the USD1.1875 level still remains intact. On the upside, if support at USD1.2624 holds, the Euro could return to August highs at USD1.3332, say analysts. While its present weakness is limited to the USD1.2624 and the USD1.2586 level, its Aug 24'10 low, analysts look for a return to the USD1.3332 level, its Aug'2010 high. A break will resume its short-term uptrend and target its .50. Fib Ret (USD1.5143-USD1.1875 decline) at USD1.3500.