Morning Forex Overview

On Monday, the dollar had fallen across the board on the Treasury Department's bailout plan and a pick-up in risk appetite.

The US dollar plummeted more than 2 percent against the euro on Monday, especially as shifting interest rate expectations start to move in favor of the euro and British pound.

Reports of central bank diversification out of US dollars and a record rally in Oil combined also supported the Euro.  And EURUSD had a strong run, cleared an important resistance area and closed session at 1.4774 compared to 1.4466 on, Friday.

British Pound gained in sympathy with the Euro although at a slower pace given some continued weak data. UK Right move Index fell -1.0% in September. Cable surged through 1.8500 with stop loss propelling it quickly to 1.8600 before settling back into the US close.

The Japanese yen held its own against the US dollar, Kiwi, Aussie, Loonie and British pound, but fell against currencies like the Swiss franc and euro. USDJPY was range-bound for some time, in the mid-106s, but as equity losses accelerated in the NY afternoon, the yen's safe haven bids returned, sending the pair to 105.20.

The Canadian dollar rocketed over 1 percent higher against the greenback on Monday, propelled by a surge in commodities. Retail sales rose for the fifth consecutive month in July, led by furniture, building supply, and pharmacy sales. However, the gains were not quite as high as expected, as the headline retail sales index rose 0.1.

The Australian dollar rose against the major currencies today as the greenback weakened on fears the U.S. government's financial assistance package would lead to significant debt problems for the U.S. economy. Traders await the finer detail - and U.S. policymakers' final approval - of a USD700 billion Treasury rescue package to clear the markets of unwanted or bad assets.

Market expectation

The euro is a bit lower on Tuesday, with buying on dips and selling above USD1.4820, according to dealers. Trading was light pending more concrete contours of the U.S. mortgage rescue plan.

EURCHF has some upside potential after holding above a key moving average of 1.5924, traders says. Expecting to test and break above resistance at 1.5990/1.6026. Further ahead, a rally towards 1.6108/32 seems possible.

For Pound offers seen placed between USD1.8580/85, more toward USD1.8600. Stops noted on a break of USD1.8610, which if triggered to allow for a move back toward the NY high at USD1.8630. Bids seen placed toward between USD1.8535/25, with stops placed on a break of USD1.8520.

For EURO bids USD1.4780, while stronger interest remains in place at USD1.4765, demand to extend down to USD1.4745 with stops placed on a break of USD1.4740. Further demand then are placed at USD1.4710/00. Offers seen placed between USD1.4805/15, a break above to open a move on toward USD1.4840/50 ahead of the NY high at USD1.4867, with offers seen placed to USD1.4870.

Treasury's USD700 billion proposal will extend the U.S. deficit and belabor already weak growth prospects, contributing directly to a weaker exchange rate for the dollar in the medium term, say currency analysts.