• EUR/USD +1.1%
• GBP/USD +0.9%
• AUD/USD +0.7%

EUR/USD

Broad Dollar Weakness On Diversification: Dollar weakness turned into euro strength as several factors reinforced greenback selling seen in the overnight.  Speculation over interest rates and central bank diversification led the handful of reasons with Middle Eastern buyers emerging late in the session forcing the currency pair higher.  Speculation has increased that this Friday's unemployment report may signal the end of current tightening bias and turn focus to the widening deficit and weaker infrastructure with the whisper number coming in below the 190K consensus.  Should the report be lower than expected, it may expose a near term weakness that would jeopardize further hike interests and spark preemptive euro short covering.   Middle Eastern and central bank diversification also contributed to the day's move as the current spot levels off and consolidates heading into the Asian session.  Further upside may ensue as manufacturing is still expected to remain relatively high in the European Union, furthering any ECB interest rate speculation.  Retail sales are additionally expected to give the euro a boost in the overnight.  However, with the resistance ceiling of 1.2300 coming into play, the rise may be capped in the short term.   A penetration above looks to trigger concern over the 1.2322 resistance.  Comparatively, profit taking and less than best showings would be reason enough to spark a move lower to 1.2161 (28.6 percent fib from the November '05-January '06 bull wave).

Rumorville: Bidding looks to resume at the 1.2225 and 1.2210 on a pullback with stops under at 1.2195.  More bidding interest resides below the 1.2200 handle with comparative offers above at 1.2315/20 and 1.2325.  Separately, option roll offs are eyed ahead as EUR/JPY reaches highs not seen since 1998.

GBP/USD

Higher Construction Leads Sterling: Sterling bidding was sparked by better than expected growth in the construction sector as per this morning's report.  According to the Chartered Institute for Purchasing and Supply, construction sector activity rose to the highest reading in six months.  Offering healthy suggestions of growth, the report lends to pound strength as it becomes increasingly apparent that rates are likely to be kept at the current 4.5 percent.  Central bankers will meet later this week as mounting speculation is siding with the probability of decisive move.  Similar sentiment additionally fueled today's move as traders eye further diversification by dollar heavy central bank's and China's coffers.  Although at a rate disadvantage, expectations of a weaker infrastructure leading to dollar weakness in the U.S. loom in the minds of institutional heads.  Next up will be pivotal manufacturing and industrial production figures.  Should reports be positive, the current 1.7600 resistance will be key.  A witnessed break would see a target refocus to the 1.7786 (50 percent fib from Sept '05-December '06).

Rumorville: Sterling bids are looking strong on a pullback as we head into Asia, with 1.7485 and 1.7450 figures leading the likely candidates.  Selling pressure looms at 1.7575, 25 pips above current pricing with further and heavier selling above the 1.7600 handle.

AUD/USD

Reserve Bank's Decision Prompts Buying: Traders bid the Aussie dollar higher ahead of today's Reserve Bank of Australia meeting.  Although expected to keep rates at 5.5 percent, central bankers are expected to drop some positive hints on the economy after seeing a trade deficit narrow on surging exports.  Exports rose to the tune of 9.6 percent in the month considerably thinning the second highest deficit on record seen in the previous month.  Expectations are also running high for the performance of service index to ring higher.  Although below the 50 expansionary figure, services are expected to rise above the mark, signaling a potential increase in the region's fortunes in the second quarter suggestions of a pickup exist.  Coupled with dollar weakness, the currency pair ranks as the third highest percentage gainer on the list and may continue in the overnight provided reports are to the market's liking.  With 0.7250 a major resistance (long term trend line), a push through would likely see a return to sub par valuations.

Rumorville: Selling pressure exists around the 0.7220 figure above the current spot.  Should stops be hit at 0.7230, bidding would join in on the bids below at 0.7180.

Richard Lee is a Currency Strategist at FXCM.