Dukascopy Bank SA

Previous session overview
On Monday, the dollar declined against the yen, but held its own against the euro as concerns about economic recession in the U.S. sent a wave of risk aversion across global markets.

In response, investors sold the greenback as well as higher-yielding currencies such as the Australian dollar, preferring the safety of the yen.

The euro gained marginal ground against the U.S. dollar yesterday as the single currency tested offers around the US$ 1.5405 level and was supported around the $1.5310 level. European Central Bank President Jean-Claude Trichet said the central bank is concerned about excessive exchange-rate moves. Trichet said ???excessive volatility and disorderly movements in the exchange rates are undesirable for economic growth'.  

The British pound gave back its earlier gains against both the Euro and US dollar. Economic data was mixed with the annualized pace of output prices increasing less than expected but input prices increasing more than expected. Industrial production fell short of expectations as well, but manufacturing production rose in the month of January.

The yen appreciated against the U.S. dollar yesterday as the greenback tested bids around the JPY101.80 level and was capped around the JPY102.50 level.  The pair consolidated some of the losses it incurred on Friday following the pair's move to multi-year lows.

The New Zealand and Australian dollars fell overnight as currency markets finally began to yield to the flow of worrying news from the realm of credit.

Market expectation
After a protracted fall, USD/CHF may correct higher in the short term. The pair may aim at 1.0329 and then at a key resistance of 1.0455/1.0478. However, underlying downward trend remains in place with a level around 1.0029 seen in one to three months.

The euro is firm against the dollar and yen so far Tuesday, but in narrow bands as forex traders monitor stock markets for clues.

The euro is likely to continue to consolidate (Monday) with support at $1.5350. Should this level give way, buyers are likely to reemerge around $1.5290/00.

We think that the dollar will continue to fall over the next few months; there is a good chance that it could rally this coming week. We have two pieces of data that could trigger the rally, Tuesday's trade balance report and Friday's consumer price release.

Fed cut is possible ahead of the March 18 meeting. It changed its view on Fed policy on Friday after the U.S. payrolls data. Interest-rate futures showed an 88% chance the Fed will cut its benchmark rate to 2.25% on March 18. 

Today we will see the release of U.K. BRC retail sales and RICS house prices, German WPI, U.K. DCLG house prices, German and euro zone ZEW survey, U.S. trade balance and U.K. leading indicators.