Forex | Afternoon Overview | 31 January 2011

Forex | Afternoon Overview | 31 January 2011

Previous session overview

The dollar was weaker in early US dealings, modestly supported by Egypt-related risk aversion but surrendering Friday's gains against the euro. Euro-zone inflation data is helping the single currency by heightening fears of an ECB rate hike, analysts said. However, concerns about Europe's debt crisis are constraining the euro's gains. A data-heavy week, which includes US payrolls data, increases the possibility of more sharp moves. EURUSD trades higher around USD1.3703 from USD1.3612 late Friday, with USDJPY flat around JPY82.16. Meanwhile, EURJPY trades around JPY112.57 from JPY111.77.

The Pound was trading at USD1.5873 against the dollar, compared with USD1.5864 late Friday in New York.

The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 78.057 from 78.156 Friday.

CAD gained vs USD, hitting session highs after domestic and US data. Canadian GDP for Nov narrowly beat expectations, with a 0.4% rise. In the US, consumer spending topped expectations, and the ISM-New York business index hit and 8-month high. USDCAD was at CAD0.9966, down from CAD1.0005 late Friday.

European stock markets have remained weak Monday, with ongoing political tension in the Middle East and North Africa the dominant theme. However, the markets have recovered to a degree from the sharp early losses, with some investors tempted in at the lower levels.

Market expectation

The euro could keep sliding in the next week if political troubles in Egypt spark a broader scramble by investors out of risky investments and into safer bets including the dollar and Swiss franc. Investors scrambled out of assets perceived to be riskier such as stocks and the single European currency on a wave of risk aversion sparked by growing unrest in Egypt, market analysts said.

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Forex Morning Review | Traders Watching Egypt | 31 January 2011

Forex Morning Review | Traders Watching Egypt | 31 January 2011

Coming up Today (All Times GMT)

- CAD GDP (13:30)

- NZD Labor Cost Index (21:45)

Opening the new week, all eyes continue to be on Egypt. On Friday, the unrest caused Oil Prices to soar as traders worried that the key Suez Canal shipping corridor could get obstructed and cause supply concerns. Also, safe havens caught a bid as traders exited riskier currencies going into the weekend. Specifically, Gold was $30 higher to 1340/oz as short sellers got squeezed on the move, while the dollar and yen both moved higher against major currencies.

Looking ahead, there are two main scenarios that Forex traders will be watching. A quick resolution to the events in Egypt could propel traders to dump safe havens and jump back into the risk trade. On the other hand, if the troubles appear like they will last, it could trigger more Forex participants to trim their positions and head to the sidelines. Traders should keep their eyes on last week’s lows as a move below those levels could cause additional weakness.

EURUSD : The EURUSD was a big loser on Friday; however it did find support around the 1.3600 figure. 1.3600 was the level that it had rallied from last week. Therefore, if the pair closes above this level it could signal that demand continues to be strong in the Euro. The Euro continues to be attracting buyers, as successful EU sovereign debt sales have eased concerns about the Euro zone’s stability.

GBPUSD : Following last week’s poor UK GDP figures, the GBPUSD has been trendless, with several spikes to both the down and upside. This trading action could continued over the short term as Forex traders await more economic data to determine the next trend in the GBPUSD. Until then, the GBPUSD has strong resistance just above 1.6000 with support at 15750 and 1.5820.

Support/Resistance 1.5760,1.5820/1.6000,1.6055

January 31, 2011 - Markets.com