Overall: It has been a volatile 24 hours in the currency market as the dollar moved much lower during last night’s Asian session, continuing the trend established during Tuesday’s U.S. session, before reversing direction during the European session and moving sideways during the U.S. trading hours. The market has stabilized as traders now get ready for tomorrow morning’s interest rate decisions from the European Central Bank and the Bank Of England. The BOE is expected to keep rates on hold while the ECB is expected to cut rates 25 basis points. As is usually the case with the ECB, no matter what the decision, the press conference that follows needs to be paid attention to as expectations are for President Trichet to announce quantitative easing measures.

U.S. equity markets moved higher, after giving up some ground on Tuesday, as leaks about the banks stress tests led to speculation that not as much capital will be needed by the largest banks. The stock market was also propelled higher by a better than expected ADP non-farm employment report this morning. ADP reported that nonfarm private employment decreased by 491,000 much better than the 644,000 expected and a smaller decline than last month’s revised number of 708,000 job losses. The report gave hope that Friday’s Non-Farm Payroll release may be better than expected.

The Euro (Eur/Usd) After all was said and done on Wednesday; the euro closed the day in close proximity to where it began, but had wild swings throughout the day. The pair moved lower during the Asian session as the dollar continued to strengthen, reversed after the London open and then again as the U.S. session got into full swing. The movement produced a range of 130 pips but the pair closed less than 20 pips higher. Activity in the pair may now wane as traders and trade desks await the ECB decision tomorrow morning.
The Pound (Gbp/Usd) Cable moved in much the same fashion as the euro, but at the close of the day the pair had posted a gain of approximately 40 pips. The Bank of England is expected to keep rates on hold tomorrow morning and that speculation has led to the pound strengthening recently. The pair closed at the highest level since early January. U.K. economic releases this morning revealed that services PMI numbers were better than expected, coming in at 48.7 as opposed to the 46.2 analysts had predicted, but Halifax HPI came in at -1.7%, below the -1.0% expected.

The Aussie (Aud/Usd) The aussie declined during last night’s Asian session despite Australian retail sales and trade balance posting better than expected numbers. Retail sales came in at 2.2% while the trade balance release revealed a higher surplus of 2.50B. After U.S. futures turned positive this morning, the aussie pared the losses and continued to move higher through the U.S. session helped by higher equities and higher gold prices. On the day, the pair gained 75 pips, closing near the 0.7500 level.

The Cad (Usd/Cad) As was the case with the aussie, higher equity markets and higher commodity prices helped the Canadian dollar strengthen against its U.S. counterpart. The pair traded in a wide 165 pip range closing the day lower by approximately 80 pips. Canadian building permits soared in March, coming in at 23.5%, way higher than the 2.4% that was expected. The Ivey PMI report also produced a better than expected read at 53.7%.

The Swissy (Usd/Chf) The swissy also moved in a wide range of approximately 100 pips on Wednesday but closed trading virtually unchanged. SNB Governing Board member Thomas Jordan said today that the SNB is closely watching the value of the Swiss franc and will intervene in the currency market, if necessary, to halt unwanted appreciation. “We will implement our policy with all the tolls at our disposal and act decisively against an appreciation of the franc”, he said.The pair closed the day just above the 1.1320 level.

The Yen (Usd/Jpy) Despite equity markets moving higher, the yen dropped on Wednesday, breaking and holding below the 20, 100 and 200 day simple moving averages, after positive economic news, especially the ADP employment report, led to speculation the global economy may be recovering, and prompted traders to sell the greenback. This is not the usual response as the dollar will normally strengthen against the Japanese yen on higher equities, but it goes to show that traders are not comfortable holding dollars right now, no matter what.