Forex Market Analysis
Morning Forex Overview // 09-24-2008
Market Overview

On Tuesday, lower oil prices and weak economic data in Europe helped the dollar make a partial recovery against the euro after the greenback's sharp losses a day earlier.

Comments by Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson did little to soothe investors' jitters. They both warned Congress of serious economic risks if lawmakers failed to hustle to approve the plan, which may carry a price tag for taxpayers of USD700 billion.

The euro slipped against the US dollar as data out of Europe proved to be exceptionally weak. Indeed, the Euro-zone purchasing managers' index (PMI) for both the manufacturing and services sectors fell below 50 - signaling contracting business conditions - for the fourth consecutive month.

The British pounds did little but consolidate between 1.85 and 1.86 during Tuesday's trading session. GDPUSD traded with a low of 1.8472 and a high of 1.8638 before closing the day at 1.8540.

Dollar fell 0.1 percent to 105.20 versus the Japanese yen due to some unwinding in carry trades on risk aversion as U.S. stock markets turned from positive to negative on the day.

The Canadian dollar strengthened slightly against the dollar with uncertainty about the US government bailout plan.

Resurgent fears in global financial markets weighed on the Australian dollar in Asia late Wednesday, as doubts about the effectiveness of the U.S. government's financial markets rescue package mounted.

Market expectation

EURUSD reported offers between USD1.4700/10 able to cap the early strong demand into European trade, a major German name and a major Asian account noted buyers in the rally from below USD1.4680. Rate traded to a high of USD1.4705 but gets shoved back to USD1.4685. A break above USD1.4710 now is needed to boost upside potential, traders suggested. Above USD1.4710 can open a move toward USD1.4720/25 ahead of USD1.4750. Bids noted at USD1.4680, more toward USD1.4660.

The euro is holding steady on Wednesday as the market waits for the key German Ifo data. Any unexpected weakness could undermine sentiment toward the euro, while investors wait for more developments on the U.S. rescue plan.

For Pound bids are placed at USD1.8500 (76.4% USD1.8472/1.8593), and break below can open a deeper move toward USD1.8480/70 ahead of USD1.8450. Offers USD1.8590/00.

Analysts are generally confident legislators will approve the bailout plan, but serious risks - including the chance of more substantial dollar losses - will exist even if the bailout goes through