Overall: Over the past few days or so, the dollar has moved either up or down against all the other major currencies as the greenback was bought or sold in the broad market. As expected, that trend came to an end today, as we get into the heart of the economic releases for the week, and movements in the dollar based pairs become a regional story. The aussie gained throughout the day on the RBA rate statement and building approvals. The euro declined on speculation the ECB will cut rates on Thursday. Cable continues to rise as traders expect the BOE to keep rates on hold on Thursday. The cad strengthened slightly on weaker equities and a slight drop in oil prices.

The service sector of the U.S. economy contracted for a sixth straight month in April but at a slower pace. The ISM non-manufacturing index rose to 43.7 from the March reading of 40.8, higher than the expected read of 42.5. Federal Reserve Chairman Ben Bernanke testified to a Congressional Joint economic Committee today and made no mention that the Fed would move the interest rates from its current level. Chairman Bernanke did say that although the economic outlook has improved it may remain weak for a time. He also warned that a “relapse in financial conditions would be a significant drag on economic activity”.

The Euro (Eur/Usd) As we get closer to the ECB’s interest rate decision, the euro is starting to trade under pressure as reported ‘in-fighting’ within the ECB, recently, has traders and trade desks not completely sure of the outcome of the policy meeting. Expectations are that the central bank will cut rates 25 basis points to 1%. The euro dropped during the Asian session but rebounded as the European session progressed, only to weaken throughout the U.S. session. The pair lost approximately 70 pips on the day.

The Pound (Gbp/Usd) It is now 5 straight days that cable has advanced, gaining more than 400 pips in the process. Economic reports from the U.K. have been on the positive side lately and traders are expecting the BOE to keep interest rates unchanged at 0.50% on Thursday. Construction PMI came in higher than expected this morning with a 38.1 read, up from 30.9 the prior month and above analysts’ expectations of 31.9. On the day, the pair gained 75 pips, closing just below the 1.5100 level.

The Aussie (Aud/Usd) Although the pair gained a relatively small 25 pips on the day, the pair continues to move higher, gaining almost 400 pips over the past 5 days. The pair was bolstered overnight by the RBA keeping interest rates steady and Governor Stevens giving a somewhat positive spin on the Australian economy, going forward. Slightly lower equity markets in the U.S. and anticipation of the release of the stress tests on banks, which could lead traders to become risk averse, limited gains in the pair today. Building approvals came in above expectations last night, but lower than the previous release. Tonight the Australian Bureau of Statistics will release retail sales and trade balance figures. 

The Cad (Usd/Cad) The Canadian dollar weakened on Tuesday, for the first time in six days as equity markets posted small losses and crude oil prices declined. The pair could continue to strengthen over the next day or two as speculation that the bank stress tests will reveal up to ten major banks will need additional capital, may push the equity markets lower and depending on the outcome of tomorrow’s crude oil inventory report. After trading in a range of more than 100 pips, the pair closed higher by 30 pips.

The Swissy (Usd/Chf) The swissy strengthened on Tuesday, gaining 55 pips after trading in a wide 120 pip range as the dollar fluctuated throughout the day. The pair halted two straight days of declines but failed to move back above the 200 day simple moving average. The SECO consumer climate came in much lower than expected this morning with a read of -38, 15 points lower than the previous release and lower than the -26 read analysts had expected.

The Yen (Usd/Jpy) The yen moved very little on Tuesday as equity markets lacked direction. The pair traded in a range of 60 pips but closed the day unchanged from where it started last night’s Asian session. Japan’s financial markets continue to be closed due to the Bank Holiday, so tonight will, once again, be free of economic releases.