USD: Same old story – I expect the dollar to stay weak with concern around inflationary pressures created by overheated emerging markets, such as China and some Middle East Countries; soaring Oil prices; and risk aversion around the US Banking Sector continuing. This week the Fed’s Kohn blamed someone else and on Thursday voiced his frustration with countries with dollar pegs, and urged them to move towards greater independence of their central bank monetary policy making and free floating rates. saying more flexibility would benefit the battle against global inflationary pressures.

Dollar Index: RANGING. Although beware of breakout below 72.5 and also Commercials have been extremely bearish for the month of June. Non-farm payrolls, service and manufacturing sector ISM numbers are due for release this week, so expect some decent action in the US dollar. Based upon the recent layoff announcements and cutbacks by companies across the nation in response to higher energy prices, job losses may continue. Note that NFP is due out thrusday (not friday)

EUR: On Wednesday, Tricky Trichet’s testimony highlighted the possibility of inflation becoming ‘entrenched as forward looking economic indicators indicate pessimism for the Eurozone ahead, connected to high energy and commodity prices. The ECB is expected to maintain a hawkish bias in order to control inflation. Euro bulls hope that the ECB not only raise rates but hint that rates will be increased again before the end of the year, the timing of the ECB rate decision at the same time as the US NFP may mean that the Euro will stay locked in its current range.

EUR/USD: RANGING. Watch for a break above 1.5800. I tend to think the Euro will continue to range, as the Euro tends to range mid year. Commercials on the COT have also backed off well and truly from their previous long positions.

GBP: The pound finally broke out of its range range this week and is heading towards a retest of 2.0 on the GBP/USD, establishing a 2 month high on the back of a narrowing current account deficit (–GBP12.2B to –GBP8.4B in the first quarter). However, the risks around the pound, mean that the current run is likely to remain short lived. Bloomberg reports on the UK pound in forex trading: “Growth being revised down, while inflationary pressures are clearly persisting, doesn’t auger well for the pound,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International, the third-largest Dutch bank.

GBP/USD BULLISH to 2.0 then RANGING.

JPY: The trend on the USD/JPY broke down this week as a result of an improved appetite for carry trades and a softer outlook on growth in Japan. Japanese economic data was mixed with household spending dropping more than expected while consumer prices and industrial production improved. The yen looks to be in for a tough time in the months ahead, as foreign exchange investors shift their focus away from the turbulence on global asset markets towards interest rate differentials.

USD/JPY: BEARISH (but only if last weeks break down continues) EUR/JPY: RANGING?. The quarterly Tankan report is due for release next week. If business sentiment deteriorates materially, it could add some downside pressure to the Japanese Yen.

AUD: The Aussie extended its gains against the greenback largely due to dollar weakness as both Australian and New Zealand economic data fell short of expectations.

AUD/USD: RANGING? In the week ahead, the RBA will have its monetary policy meeting. Even though interest rates are expected to remain unchanged at 7.25 percent, it will be interesting to see if the central bank grows even more hawkish, moving themselves closer to raising interest rates. In addition, Australian has retail sales, service and manufacturing PMI numbers due for release.

This entry was posted on Sunday, June 29th, 2008 at 1:13 pm and is filed under My Trading Journal. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.