Previous session overview
The euro stayed steady but vulnerable to further declines Tuesday as concerns over the euro-zone sovereign debt crisis showed no signs of abating, with traders here bracing for further negative news for the currency to turn up in the coming days.
Although the euro was mostly steady against the dollar in Asian trading amid the absence of fresh bad news, anxiety over sovereign risk woes in Europe particularly in Greece has weighed on the single currency, which prodded investors to flee to safe-haven currencies like the Swiss franc, the dollar, and the yen, traders said. On Monday, the euro zone's manufacturing Purchasing Managers' Index dropped much more than expected to 54.8 in May from 58.0 in April. Economists had predicted a manufacturing reading of 57.5.
Meanwhile, the USDJPY exchange rate remained caught in its recent JPY80.50-JPY82.50 range, with exporters seen intent on selling dollars above JPY82.00, traders said.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 76.091 from 76.151 in late New York Monday.
The GBP falls, marking a fresh low for the day against the JPY, after Moody's says it is reviewing its ratings of selected U.K. financial institutions for possible downgrade. After hitting a fresh intraday low at JPY131.43, down from around JPY131.75 before the Moody's announcement. The GBPUSD is also down and it's trading at USD1.6096 from an earlier high of around USD1.6106 before the announcement.
The Australian dollar erased much of a sell-off in U.S. and European trading helped by technical buying and rising inflationary concerns in the region Tuesday. At 0615 GMT, the Australian dollar was changing hands at USD1.0540, down slightly from USD1.0552 late Monday. Against the Japanese yen, the Australian dollar was at JPY86.18, down from JPY86.515.
Market expectation
Even though the euro is stabilizing Tuesday, traders doubt that it will recover much.
With the currency on Monday dipping below USD1.40 for the first time since March, a worsening sovereign-debt crisis, a faltering global economy and a general positioning reversal in foreign-exchange markets may conspire to bring the European currency down more.
The next stop for the euro is more likely USD1.35 than USD1.45, some analysts said. At the very least, few market participants are ready to say this is a buying opportunity, unlike what similar pullbacks induced earlier in the year.
Dealers said the euro could stay in a USD1.35 to USD1.45 range by the end of the June when some measures to solve the Greek debt problems may be hammered out.
Traders are keeping an eye on German Ifo Business Climate Index for May due at 0400 GMT, with a forecast of economists showing that the Business Sentiment Index would fall to 113.7 from 114.2 the previous month.
European stocks are expected to open tentatively higher Tuesday after Monday's sharp losses, but the possibility of declines later in the session remains as continuing concerns about the European debt situation eat into investor confidence.
Legal disclaimer and risk disclosure
This overview can be used only for informational purposes. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.
