Previous session overview

On Monday, the dollar fell on a series of factors that, taken together, reversed last week's gains against the euro.

Fiscal policy, the US Government reported a 159.3 Billion surplus in April largely boosted by Tax receipts. Crude oil set another record high of USD126.40, although falling USD1.73 a barrel to end at USD124.23.

The euro rose during a subdued session, with European markets partially closed due to the Whit Monday holiday. ECB council member Quaden commented that euro interest rates are not harming Euro zone growth, which helped the euro to tick up over 1.55. The euro broke through the key level of USD1.5570 Monday to an intraday high of USD1.5571, opening the way for a rise to USD1.5740.

The Sterling was one of the best performing currencies overnight, rebounding from three month lows against the dollar as UK Producer prices caused traders to trim bets that the BoE would look to cut rates in their next meeting. GBPUSD traded with a low of 1.9444 and a high of 1.9633 before closing the day at 1.9621 in the New York session.

The Japanese Yen lost ground against a number of currencies as rallying stocks and confidence in financial markets paved the way for investors to purchase high yielding assets funded by the Yen. USDJPY traded with a low of 102.62 and a high of 104.04 before closing the day at 103.73 in the New York session.

The Australian dollar continued to outperform, rising back to 0.9470. Yesterday's weak housing finance figures, and a fresh low in business confidence, failed to deter investors for long, with both the currency and interest rates bouncing back overnight.

Market expectation

The euro is steady against the dollar and slightly lower against the yen on Tuesday, as markets wait for more euro-zone and U.S. data to gauge the likely monetary stances in each.

Traders and analysts said last week's rise in the dollar, even as oil prices pushed higher left the euro as a cheap buy. Tips EUR/USD resistance at 1.56 for now.

GBP strength of yesterday has been short-lived, given this morning's soft housing, retail sales data. Moreover, with house price inflation dipping into negative territory, we remain wary about the UK growth outlook. CPI and Retail Sales now take the spotlight as traders try delving into how high inflation remains in the UK.

Key for AUDUSD in new government's inaugural budget is depth, scale of promised spending cuts, but likely sluggish U.S. retail sales in offshore session will add support.

On Tuesday, much focus surrounds that of Chairman Bernanke heading a number of speeches from the Federal Reserve.

Locally, the main event this week is the retail sales data on Thursday. Electronic card transactions point to a small fall for the month of March, continuing the weak trend.