Daily Forex Overview

Previous session overview
On Monday, the dollar lost its footing and declined against its major rivals after a steady climb a week earlier.

The greenback lost some of its earlier gains against the majors in New York trading, giving back the 1.55-level versus the euro and 1.97 against the sterling. The dollar rallied initially on a stronger than expected April non-manufacturing ISM, which sent  back into expansion territory at 52 - its highest reading since December and beating calls for a deterioration to 49.1 from 49.6 in March. The employment index improved to 50.8 in April.

ECB President Jean-Claude Trichet warned again on Monday that the risk of inflation is ???significant' due to the rise in food and energy costs.

EURUSD traded with a low of 1.5425 and a high of 1.5519 before closing the day at 1.5496 in the New York session.

The Sterling although saw markets closed for a bank holiday, remained pressured ahead of the BoE rate announcement this week. GBPUSD traded with a low of 1.9657 and a high of 139783 before closing the day at 1.9717 in the New York session.

The Japanese Yen tracked other majors as Japanese markets remained closed for the day. Upon positive readings in US ISM services the USDJPY came within a two month high of 105.62 and a low of 104.74 before closing the day at 104.79 in the New York session.

The Australian dollar was stronger late Tuesday, supported by a boost in commodity prices and a pullback in the U.S. currency as the price of oil continued to push up, hampering expectations of a U.S. economic recovery.

Market expectation
Analysts are looking ahead, though, to the European Central Bank's Governing Council meeting Thursday, when it is expected to keep interest rates unchanged. Still, currency market watchers are waiting to see if policy makers alter their economic outlook in light of more recent euro-zone data.

It seems that the risk appetite has returned to the markets and traders with money to spare are not looking to the low yielding dollar as opposed to carry currencies.

Tuesday will see the release of German, euro zone and U.K. services PMI respectively and euro zone PPI.

Look to London for more volatility and keep an eye to see if crude can possibly make another new high.

EUR/CHF seems to be running out of steam above 1.63. USDCHF will remain a factor to watch for the pair. Pegs EURCHF at 1.60 in the next few quarters.

Commodity prices, global equities will drive price direction for AUDUSD in near term, despite more-dovish-than-expected RBA statement.