Afternoon Forex Overview

Previous session overview

The euro gained modestly on the dollar Thursday after better-than-expected U.S. data allayed some worry over the pace of the economic recovery, leading investors into higher-yielding currencies.

The common currency also benefited from a successful auction of Irish government debt, further soothing investor nerves that had been on alert after recent concerns over the efficacy of European bank stress tests.

The U.K. pound, meanwhile, fell against its rivals after the U.K. trade deficit rose to its widest on record. The Bank of England also left key interest rates unchanged.

The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 82.521 from 82.608.

The U.S. trade deficit contracted sharply in July, posting its biggest drop in 17 months, narrowing by 14% to USD42.78 billion from a downwardly revised USD49.76 billion the month before, the Commerce Department said Thursday; economists had predicted a USD47 billion trade gap.

Number of U.S. workers filing new claims for jobless benefits fell last week by more than economists expected. Initial unemployment claims decreased by 27,000 to 451,000 in the week ended Sept. 4; economists had expected new claims would decline by a mere 2,000.

EURUSD hits intraday high, at USD1.2754 from USD1.2716 late Wed, as better-than-expected US data casts wave of risk taking over markets, leading to gains in higher-yielding currencies. Stock futures point to positive open, which could help currencies closely tied to global growth rack up even more gains. AUDUSD among biggest gainers raised nearly 1% on heels of good US data and better-than-expected Australian unemployment figures.

Market expectation

How to deal with the yen's rise to 15-year highs against the dollar in recent days is a major policy challenge facing Tokyo. Some exporters say they are losing out to rivals overseas and are increasingly looking to relocate some facilities to other countries to cut costs.

EURJPY quotes at JPY106.78 where it attempts to consolidate above that key resistance. With strongly bullish momentum, the further level to keep an eye out for to the upside is JPY107.09, while support below is listed at JPY106.46 and JPY106.16, technical analysts say.

The dollar fell earlier to CAD1.0301, the current low for its intraday downtrend against the Canadian dollar, as the hourly chart shows. New downtrend lows would be the signal for a dip to test support at CAD1.0288. But a move above CAD1.0465, on the other hand, would start an intraday rally to CAD1.0501.