Previous session overview

The euro fell to a fresh 14-month low against the dollar in Asia Thursday as riots in Greece fueled investor concern that the nation can't implement fiscal reform steps smoothly and may face higher default risk.

Three people were killed during demonstrations in Athens Wednesday in protest against the government's spending-cut and tax-hike plans to avert national bankruptcy. Over the weekend, the government agreed to an EUR110 billion (USD141 billion) European Union and IMF debt bailout.

During Asian trading, non-Japanese Asian hedge funds and some Japanese institutional investors sold the euro. The single currency fell to USD1.2789, its lowest point since March 12, 2009.

Against the yen, the euro was higher at JPY120.47 from JPY120.12 in New York overnight as some Japanese importers bought the unit to settle their accounts after Japan's Golden Week holidays ended Wednesday.

The dollar, meanwhile, was higher at JPY93.93 from JPY93.66 in New York overnight due to buying by Japanese importers.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 84.131 from 84.102.

The Pound bounce to USD1.5174, the pair then tumbled below Tuesday's low of USD1.5090 to a five-week low against the dollar at USD1.5068 in NY morning. Although the latest polls were showing Tories might come closest to winning the parliamentary election on the coming Thursday, two polls were pointing to a 'hung parliament', which would leave the country a government too weak to rein its budget deficit.

The Australian dollar was half a cent weaker in Asia on Thursday after retail sales disappointed and the ongoing Greek debt crisis prompted investors to sell riskier or high yield assets, driving bond futures higher.

Market expectation

The euro is likely to resume falling against the yen as well due to the Greece concerns, and any declines will likely be sharp, dealers said.

That is because many Japanese exporters and institutional investors place their exchange rate break-even point at JPY120, meaning they may rush to sell the euro anytime to secure profitability of assets in Europe.

Elsewhere, investors will continue to eye any developments in Greece after Wednesday's violent riots highlighted the lack of public support for austerity measures. Many market participants are now worried that Greece may not be able to implement the spending cuts it needs to carry out in return for a bailout package. Fears about debt contagion are also rife, particularly after Moody's placed Portugal's debt ratings under review Wednesday.

Looking ahead, the euro should resume falling, and it may fall to the next significant psychological level of USD1.260 in a few days, analysts said.

Locally, dealers will be watching the RBA's quarterly inflation and growth forecasts, due Friday, which will give guidance for the direction of policy in coming months.

EUR/USD
Trading range: 1.2865 - 1.2765
Trend: Downward
Sell at 1.2855 SL 1.2887 TP 1.2778

USD/JPY
Trading range: 94.10 - 93.20
Trend: Downward
Sell at 93.98 91 94.30 TP 93.26

GBP/USD
Trading range: 1.5155 - 1.5045
Trend: Downward
Sell at 1.5145 SL 1.5177 TP 1.5057

USD/CHF
Trading range: 1.1145 - 1.1250
Trend: Upward
Buy at 1.1155 SL 1.1123 TP 1.1239

The New Zealand Dollar soared against major currencies following a report showing the unemployment rate fell for the first time in over two years in the first quarter, boosting interest rate hike expectations.

The Euro and the British Pound edged higher against the US Dollar in Asian hours as traders digested the greenback’s NY-session advance. We remain short EURUSD at 1.4881.

New Zealand Employment grew 1 percent in the first quarter, topping expectations of a 0.2 percent increase. The Unemployment Rate fell to 6 percent – the lowest since the second quarter of 2009 – marking the first decline in over two years. The New Zealand Dollar soared against its major counterparts after the report crossed the wires as traders bet that robust labor markets would boost consumption and ramp up economic growth, leading the central bank to raise interest rates in the near term. Indeed, a Credit Suisse gauge of the markets’ monetary policy expectations shows investors see a 98 percent chance of a 25bps rate increase in June versus just 64 percent just a week ago. Cautionary comments from RBNZ Governor Alan Bollard were not enough to meaningfully cool the Kiwi dollar’s advance. The central bank chief said rates will not need to rise as far as in previous tightening cycles, adding policymakers do not intend to “touch the brake pedal” for some time.

Australian Retail Sales disappointed in March, adding 0.3 percent from the previous month and underperforming forecasts for a 0.7 percent increase. Household appliance sales proved to be the most significant drag on retail activity, down 1 percent from February. A separate report showed the Trade Balance deficit widened for the third consecutive month to –A$2.1 billion as overseas oil purchases pushed imports to outpace the gain in overseas sales.

An interest rate decision from the European Central Bank headlines the economic calendar in European hours. The outcome is unlikely to produce any significant changes with inflation well below the 2 percent target level and economic growth showing signs of slowing momentum in the first quarter. Instead, all eyes will be focused on ECB President Jean-Claude Trichet’s press conference following the announcement, with the central bank chief will sure be grilled about Greece as well as the implications of any future bailouts for monetary policy. In fact, some analysts are already suggesting that the Euro Zone may opt to inflate its way out of debt by slashing borrowing costs and resorting to quantitative easing should a major member state succumb to sovereign risk concerns.

The UK general election will also be in focus as months of speculation end with voters finally heading to the polls. A series of televised debates between the candidates for Prime Minister produced a serious contender in the Liberal Democrat’s Nick Clegg, meaning that displacing the broadly disliked Gordon Brown and his Labour party will not necessarily secure a majority for the top-contender Conservatives and threatening to create the first “hung parliament” since 1974. This could prove to have dire outcome for British Pound, with investors fearful that a divided government will not have the conviction to meaningfully deal with the nation’s soaring budget deficit, a gap approaching 12 percent of GDP.

Previous session overview

The euro fell against the U.S. dollar and the yen Wednesday in Asian trade, hit by concerns that the euro-zone sovereign debt crisis may not be contained by the latest bailout package announced for Greece.

At 0450 GMT, the euro was at JPY122.65, from JPY122.71. At the same time, the dollar traded at JPY94.73, up from JPY94.40 but still unable to breach the JPY95 resistance that has held for two days. Japanese markets remained closed Wednesday for the last day of the Golden Week holidays, and will reopen Thursday.

Most Asian currencies were dragged lower by the euro and tumbling stock markets Wednesday but remained within recent ranges, with the exception of the Indonesian rupiah and the Philippine peso.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 83.583, up from 83.306 late Tuesday.

The euro sank to fresh one-year lows against the dollar Wednesday as anti-austerity strikes in Greece and euro-zone debt contagion fears spooked the market. The single currency tumbled to a fresh one-year low of USD1.2980 on active cross selling in euro.

In the U.K., investors continue to fret about the possibility that Thursday's general election could result in a hung parliament. Cable moved narrowly in Asia but later tumbled to USD1.5090 before rebounding in US session.

The Australian dollar was weaker in Asia trading late Wednesday, plumbing four-week lows, while the market remained jittery awaiting more news on the Greek sovereign debt crisis as domestic concerns weighed on the pair, traders said.

Market expectation

Analysts said doubts about the Greek government's ability to carry out harsh austerity measures required by the EUR110 billion package, as well as concerns that Spain and Portugal may soon need an even bigger package, are likely to keep the euro under selling pressure in the short term.

Greece will continue to be the main focus, with thousands of public and private sector workers set to join a nationwide strike Wednesday to protest against the austerity measures the country needs to implement in return for its aid package, while the Greek parliament is expected to vote on those measures on Thursday. On Friday, European leaders will hold a summit to approve the bailout.

European stocks are expected to open in a cautious manner Wednesday, following weak U.S. and Asian leads, as investors question the viability of the Greek rescue package, amid fears that the debt crisis could spread to other vulnerable countries in Europe.

On the economic calendar, investors will turn to euro-zone services purchasing managers' index at 0800 GMT and retail sales at 0900 GMT. In the U.S., the ADP employment report is at 1215 GMT and non-manufacturing ISM is at 1400 GMT.

EUR/USD
Trading range: 1.2925 - 1.3025
Trend: Upward
Buy at 1.2937 SL 1.2905 TP 1.3014

USD/JPY
Trading range: 94.55 - 95.50
Trend: Upward
Buy at 94.68 SL 94.36 TP 95.40

GBP/USD
Trading range: 1.5110 - 1.5225
Trend: Upward
Buy at 1.5123 SL 1.5091 TP 1.5211

USD/CHF
Trading range: 1.1085 - 1.0980
Trend: Downward
Sell at 1.1072 SL 1.1104 TP 1.0988