Excessive volatility currency trading probably will remain an integral short-term function as margin calls continue to induce a reduction in speculative plays in commodity trades and spark wider USD buying. The Euro should be able to locate a short-term bottom in the 1.40 region against the dollar given the potential for underlying reserve diversification out of the dollar by Asian central banks.

The Euro continued under selling stress in European forex trading on Thursday and dropped to a low around 1.4125 while risk appetite deteriorated. The Euro ended up being able to recuperate to the 1.4250 region in choppy systems trading. Fears over the Euro-zone sovereign debt situation will certainly proceed in the short term. There will be certain fears that German political resistance to fresh support for Greece will thrust the country closer to debt default. Risk conditions will stay critical and there will probably be additional defensive dollar support if sentiment signals worsen again.

Sturdy GDP details from core Euro members will keep speculation over a further increase in ECB interest rates which will present some degree of Euro support. The dollar will nevertheless be hampered by a lack of confidence in the fundamentals and by anticipations that the US Federal Reserve will maintain a loose monetary policy after June.

The dollar will, for that reason, continue to be relying on weakness elsewhere to make strong progress. On the whole, rallies are liable to stall in the 1.4350 region with a renewed test of support within the 1.4125-50 area.

Against the Yen, the dollar was unable to break over 81.30 during Thursday and was confronted with renewed selling with a test of support near 80.50. The yen will acquire some defensive support when risk appetite signals drops and there’s a fresh decrease in commodity prices. Underlying confidence in the Japanese economic system will continue to be quite fragile and the medium-term yen signals looks very weak. Choppy forex trading conditions will remain and there is scope for US dollar support at the 80.50 area, especially with rumours over fresh G7 intervention to stem yen gains.

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