3-Month Dollar Interbank Rates Edge Up; Euro Steady

LONDON, March 25 (Reuters) - Interbank lending rates for three-month dollar funds were indicated slightly higher on Wednesday compared with the previous session as financial markets continued to reassess the likely success of the U.S. Government's plan to clean up banks' balance sheets. The two-year U.S. dollar interest rate swap spread over comparable Treasury yields -- a closely watched gauge of investor risk aversion -- narrowed to 54 basis points from 58 basis points early Tuesday, as the two-year yields held firm a day after the sale of $40 billion of two-year notes. Three-month dollar deposit rates were indicated between 1.24 and 1.55 percent compared with 1.16 and 1.53 percent early in London on Monday. Three-month euro deposit rates were indicated in a 1.39 to 1.56 percent range versus 1.35 to 1.56 percent, while three-month sterling was in a wider 1.17-1.51 percent range compared with 1.44-1.50 percent. Interbank deposit rates are only indicative prices of where banks are lending to each other, which institutions use as a base to set their own lending rates.

Market Commentary

MARKET COMMENTARY ON 25TH MARCH 2009

GBP/USD closed higher on Tuesday extending this month's rally. The high-range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near-term. If June extends this month's rally, February's high crossing at 1.4930 is the next upside target. Closes below the 20- day moving average crossing at 1.4200 would confirm that a short-term top has been posted. First resistance is today's high crossing at 1.4752. Second resistance is February's high crossing at 1.4910. First support is the 10-day moving average crossing at 1.4245. Second support is the 20-day moving average crossing at 1.4168.

EUR/USD closed lower on Tuesday and below the 50% retracement level of the December-March decline crossing at 1.3520. The low-range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If June extends this month's rally, the 62% retracement level of the December-March decline crossing at 1.3770 is the next upside target. Closes below the 20-day moving average crossing at 1.2948 would temper the near-term friendly outlook in the market.

USD/CHF posted an inside day with a lower close on Tuesday as it consolidates below the 50% retracement level of the December-March decline crossing. The mid-range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI are becoming overbought but remain bullish signaling that sideways to higher prices are possible near- term. If June extends this week's rally, the 62% retracement level of the December-March decline crossing is the next upside target. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted.

USD/CAD closed higher on Tuesday as it extended this month's rally. The mid-range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near-term. If June extends this month's rally, the reaction high crossing is the next upside target. Closes below the 20- day moving average crossing would confirm that a short-term top has been posted.

USD/JPY closed lower on Tuesday and below the 20-day moving average. The mid-range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI are turning bearish signaling that sideways to lower prices are possible near-term. Closes below last Tuesday's low crossing would confirm that a short-term top has been posted. If June renews this month's rally, the reaction high crossing at 100.20 is the next upside target.