FOREX: Dollar to Extend Gains as Risk Aversion Continues in European Trade | Learn Forex | GoLearnForex.com

Overnight Headlines

• NZ Dollar Sold as Asian Stocks Follow Wall Street Lower
• Australian Retail Sales Rise Most in 11 Months in April
• Yen Falls on Political Risk as Kan Faces No-Confidence Vote

Critical Levels

The Euro rose in overnight trade, adding 0.3 percent against the US Dollar ahead of an upcoming speech from ECB President Jean-Claude Trichet at 9:15 GMT amid expectations he will sound a hawkish tone on inflation and interest rate hikes. The British Pound held in a narrow range near 1.6350.

Asia Session: What Happened

The New Zealand Dollar declined in overnight trade, down as much as 0.34 percent on average against its major counterparts as Asian stocks followed Wall Street lower in the aftermath of bitterly disappointing US employment and manufacturing growth data. The MSCI Asia Pacific regional stock index fell nearly 2 percent. The Australian Dollar managed to avoid the worst of the selloff across sentiment-sensitive currencies as Retail Sales soared 1.1 percent in April, crushing expectations calling for a 0.4 percent increase and yielding the strongest outcome in 17 months.

The Japanese Yen also faced heavy selling pressure as Prime Minister Naoto Kan prepared to face a no-confidence vote today over his handling of the aftermath of the Tohoku earthquake, specifically the subsequent nuclear crisis at the Fukishima Daiichi power plant. If the vote passes, Kan will have to call early elections or abandon his post within 10 days. Heightened political uncertainty pushed the Yen down as much as 0.5 percent.

Euro Session: What to Expect

UK Construction PMI figures amount to the only bit of economic data on tap in European hours. Expectations call for a shallow bounce in May after the aggressive decline in the previous month (the largest since July 2010), but the release is unlikely to provide significant support to the beleaguered British Pound after yesterday’s dismal data set weighed heavily on Bank of England rate hike expectations.

On balance, sentiment trends remain in focus, with FTSE 100 stock index futures pointing aggressively lower to hint that risk aversion noted in North American and Asian trade will carry over into the European session, underpinning the safety-linked US Dollar against most of the majors.

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