Forex

Daily Forex Analysis (August 05, 2010)

Contributed by Finexo

By Finexo

The Dollar's recent downtrend against the majority of its currency counterpart came to a halt yesterday, after reports showed that the U.S. added more workers than expected and the service industries grew faster in July. The Greenback eased up from an eight-month low against the Yen and gained for the first time in three days versus the Euro, after the ADP Non-Farm Payroll (Parolls excluding government agencies) increased by 42,000 workers last month,  marking its sixth consecutive monthly gain. Moreover, Service industries grew at faster than expected rate in July, reflecting an increase in employment and reducing the risk that U.S. economic growth will slow in the second half of the year. Commodity based currencies such as the Canadian and Australian dollar remained up against the greenback, with the Canadian closing yesterday's trade at its highest price since May.

Up ahead today, there are many key economic releases, with the main focus on the ECB and BOE rate announcements. While both central banks are expected to hold their key interest rates at 1.0% and 0.5% respectively, any significant comments made by policy makers, with respect to the growth or inflation outlook, will have an impact on the currencies.

EUR/USD

The Euro edged down against Dollar ahead of the European session, just hours before the ECB rate announcement. The 16-nation common currency slipped to fresh daily low of $1.3143 during the late Asian trade.  Meanwhile, the ECB is expected to hold its key interest rate at 1.0%, for the 16th consecutive month.

On Tuesday, the Euro hit a 3-month high of $1.31260; but has since then fallen, mainly to recent Dollar's strength. Technically, the pair's upward movement is still intact and would require a break below 1.30 before its rally is truly over.

GBP/USD

Met with renewed selling pressure, the Cable fell to a 3-day low, as concerns over the strength of the U.S. economic recovery eased following yesterday's positive U.S. data. During the European session, the Pound slipped to $1.5826, its lowest level since August 2nd.

Today, the BOE is expected to leave both its official banks rate, as well as its Asset Purchases Facility unchanged. Officials' comments, depending on how cautious or optimistic they are about the recent improvement of the UK economy, will give some sign to the markets about future interest rate decisions. Therefore, a more conservative stance could put some selling pressure on the pair while a more hawkish tone could provide the pair with support for upward movement.