Daily Forex Overview

Previous session overview
On Tuesday, comments by European officials upset over what they see as an over-inflated euro put the kibosh on a rally in the single currency, ending its five-day streak of record highs versus the dollar.

With no significant macroeconomic releases on the table Tuesday was a relatively slow day in the financial markets. Events did however reveal that the underlying sentiment remains negative.

The Euro  was once again range bound, trading higher during the day despite the Euro zone policy makers pressuring Washington to do more to halt the dollar's decline. On the data front Euro zone PPI data came in on expectations of 0.8% for the month of January. Overall the EURUSD traded with a low of 1.5174 and a high of 1.5250 before closing the day at 1.5210 in the New York session.

The British pound strengthened against the dollar even after a private report showed construction, which accounts for 6 % of Britain's economy, grew at its slowest pace in February. Traders pared bets on how far the BoE will cut interest rates this year which also added to the pound gain.  GBPUSD traded with a low of 1.9827 and a high of 1.9892 before closing the day at 1.9862 in the New York session.

The Japanese yen strengthened against the dollar, as investors' concern over the US slipping into recession prompted carry trade to be brought to the forefront. USDJPY traded with a low of 102.65 and a high of 103.57 before closing the day at 103.32 in the New York session.

The Canadian dollar weakened against the US dollar after the Bank of Canada announced a 50 basis point rate cut to 3.50 %.

The Australian and New Zealand dollars weakened against the US dollar. The Reserve Bank of Australia raised rates by 25 basis point to a 12-year high of 7.25 %.  AUDUSD traded with a low of 0.9220 and a high of 0.9371 before closing the day at 0.9274 in the New York session.

Market expectation
EUR/USD rising as players who have been selling pair now buying it back as pair's downside limited due to many bids.

EUR/CHF ticks lower, and will likely remains on the defensive.

AUD/USD on course to break out of recent trading range, slipping to 0.9100/0.9150 in near term, but USD woes set to continue, keeping support under AUD/USD.

The US dollar extended its weakness against the Euro, British pound and Japanese Yen as traders begin to shift their focus to Friday's non-farm payrolls report. Today we are expecting a number of leading indicators for non-farm payrolls including the Challenger Layoff report, the ADP employment survey and service sector ISM, which should be a big market mover. If service sector ISM fails to recover, there is a decent chance that we will see a particularly horrid non-farm payrolls number on Friday. Fed officials are also dueling it out on inflation which suggests that the Beige Book report, which will also be released tomorrow could focus primary on growth.

Many investors worry that the US is falling into recession on the heels of subprime mortgage woes.