The Japanese yen strengthened Tuesday as equities markets declined, reducing investor interest in risky investments such as carry trades financed with low-yielding currencies such as the yen.

The retreat from carry trades weakened currencies with high yields, such as the Australian and New Zealand dollars, but the yen also gained on the US dollar and the yen.

In late-morning trade in New York, the yen traded at ¥102.3098 to the Australian dollar, at ¥80.604 to the New Zealand dollar, at ¥168.1536 to the euro and at ¥107.3950 to the US dollar.

The Australian dollar was also weaker versus the greenback, with an Aussie worth 95.29 cents US while the New Zealand dollar dropped to 75.05 cents US to the kiwi.

The Aussie was down in relation to the US dollar after data from a survey by National Australia Bank (ASX: NAB) showed that business confidence was down in June in Australia, while the New Zealand dollar was hurt by speculation that the Reserve Bank of New Zealand could cut interest rates from the current 8.25 percent.

Meanwhile, the greenback strengthened versus the euro to trade at $1.5657 to the shared currency on comments from Federal Reserve Chairman Ben Bernanke, who said in a speech in Virginia that the Fed is considering extending access to direct loans to securities dealers who handle US government debt.

Federal Reserve Chairman Ben Bernanke has the market guessing about whether interest rates will be increased this year. His comments this morning about increasing the duration of emergency lending to investment banks reduces the chance that borrowing costs will rise. Take a look at the recent comments from Fed and ECB officials:

US Fed: Down Playing an Interest Rate Hike?

Ben Bernanke, Federal Reserve Chairman (Voting Member)

"The Federal Reserve is strongly committed" to financial stability and is "considering several options, including extending the duration of our facilities for primary dealers beyond year-end,"

"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said. - July 8, 2008

Janet Yellen, San Francisco Fed President (Non-Voting Member)

"Things could get worse before they get better," "The unemployment rate could increase"

"The risks to inflation are likely not symmetric and they have definitely increased. We cannot and will not allow a wage-price spiral to develop," - July 7, 2008

Henry Paulson, US Treasury Secretary

There is a strong possibility that we will be growing at the end of the year - that we will have stronger growth at the end of the year than we have now."

"Our biggest concern is the downturn."

"There’s no doubt that high headline inflation numbers are a real concern to Americans, but core inflation is relatively contained and my biggest focus today is on the downside risks, which are housing, oil prices, and what is going on in the capital markets." - July 3, 2008

Federic Mishkin, Fed Governor (Voting Member)

"Growth could continue to be quite weak, though I would hope it would pick up next year," - July 2, 2008

ECB: Respect the Words "No Bias"

Gertrude Tumpel-Gugerell, ECB Board Member

This (no bias) is a shared feeling within the Governing Council." - July 8, 2008

Yves Mersch, ECB Governing Council

‘We are sending a signal today which shows that we are determined to act against home-made inflation.’ - July 4, 2008

Klaus Liebscher, ECB Council Member

"I cannot rule out a transitory further rise in the inflation rate, the extent of which is open…But I stick to the scenario that during 2009 inflation will moderate, although will still be above our definition of price stability."- July 4, 2008

Jean-Claude Trichet, European Central Bank President

"This (no bias) is a shared feeling within the Governin’Against the present background and on the basis of our present assessment, we believe that the monetary policy stance after today’s decision will contribute to achieving our objective of price stability. Starting from here, I have no bias. You are aware of our constant position, which is fully part of our monetary policy handling. We make no pre-commitment on the medium term and we do always what is necessary to deliver price stability in line with our definition in the medium term. I insist on both "the medium term" and "in line with our definition". And we do what is necessary to be credible in this delivery in order to solidly anchor inflation expectations in line with our definition.’

‘First of all, at the mid-point of this year, we do not have a rate of growth that is flattering. That is clear and I warn you in advance that the second quarter will be very different from the first quarter. The two quarters must be taken into account together, because we clearly had a very flattering first quarter, which will certainly not be mirrored in the second quarter. And I can say that the third quarter will probably not be particularly flattering either. That being said, the information we have at our disposal permits the Governing Council to trust that its assessment of moderate ongoing growth is appropriate at the time of speaking. But I also told you that the risks were on the downside.’ - July 3, 2008

BoE: Inflation Should Ease on its Own

Charles Bean, Bank of England Chief Economist

A "more persistent" or "more pronounced" slowdown may lead "inflation to undershoot the target in the medium term."

"The pickup in inflation should be temporary provided pay growth doesn’t try to compensate for the overall pickup in inflation," Bean told the committee today. - July 2, 2008

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Back to Square One

Market Overview

The anticipated euro dollar break out wasn’t to be and the market has dropped back into the centre of a range. Whilst the dollar bear story has clearly weakened in the short term, the risk over the long term remains to the downside and, after what could be another fortnight of range bound price action, a break-out should be forthcoming.

Interestingly, despite the drop in equities, precious metals have remained range-bound and traction in the yen has been very limited. Whilst relationships can break down, there is also a risk of a sharp correction in the yen, although there does not appear to be any immediate risk of this. Indeed euro yen continues to try and hold over the 2007 resistance at 168.95 and should attempt a final squeeze.

Euro sterling continues to be painted into a corner. The break-out risk favours the upside, but clear resistance at 0.8001 is the main hurdle. As the trigger lines converge for a break out, we should be close to a resolution. All in all the market does feel very short term in orientation, but hopefully will not remain this way for too much longer.

VIX index. Equity volatility usually equates to a pick up in yen volatility. Whilst the relationship has been more tenuous of late, it could still be a leading indicator. The long term bias remains yen bullish.

Euro/US dollar

Unfortunately, despite all the forces conspiring against the dollar, the range remains intact. However, the bias continues to buy euros looking for a break of 1.6020 and then 1.7200 over the coming months. From a strategic perspective, 1.5416 is trendline support so any dip to 1.5430 is a buy level on stops below 1.5270.

US Dollar/Japanese yen

Back to square one here. 108.60 is the main trigger level to reverse the dollar trend. Whilst below this key resistance, the preferred view is to sell dollars looking for 100. A pick up in the VIX index has not seen the normal traction in the yen, but there is still time.

Sterling/ US dollar

I got the break-out wrong here. Whilst I still expect it to break from a long term persepctive, the market is back in the range with another lower high formed at 2.00. 1.9388 is key support and a breach would severely weaken the long term bullsih case.

Euro/Japanese yen

Despite the move in equities, euro yen has remained resilient. The market continues to press new highs. It feels like there is going to be an inevitable correction just as I go long, but try a bullish strategy here, buying the current 167.66 on a stop and reverse through 165.60, target 172.00.

Australian dollar/US dollar

The break-out wasn’t to be and stops have been hit at 0.9540. For choice, parity is still the favoured target, but given the failed breakout, look to buy a deeper retracement to 0.9390 on stops below 0.9340.

Euro/Sterling

The break-out looks close to occuring as the trigger levels converge although intra-week ranges have been large. For choice the bias is to the upside with a break of 0.8001 a key signal. Stops are below 0.7875.

US dollar / Swiss franc

The bearish dollar strategy remains. Stops came close at 1.0360 and the range continues to frustrate, but targets remain at parity and 0.9600.

US dollar / Canadian dollar

Whilst this market is range bound and has been for some time, the downward trend should resume shortly, perhaps in the next few weeks. Look to sell US dollars with a stop over the 1.0311 resistance line. Initial targets are at 0.9600.

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The Euro is recovering today after yesterday’s sell-out session, according to Nicole Elliott, senior technical analyst at Mizuho Corporate Bank, today’s will be a consolidation session: “Recovering from the bottom of the Ichimoku ‘cloud’ and we expect the Euro to hold above the top of the cloud today. Expect nervous consolidation between 1.5650 and 1.5750.”

In regards to strategy, Elliott advices: “Possibly attempt longs on a dip to 1.5655; stop/reverse below 1.5600 for 1.5465. Cover ahead of 1.5750.”
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The Euro has gained positions against the Dollar in today’s European session, according to Valeria Bednarik, analyst at MolFX management, breaking a descendant trendline: “Eur/Usd is right now at 1.5735, with bullish signals in 4 hours charts, breaking a descendant trend line; however the pair needs to break above 1.5760 to continue running higher, first to the zone around 1.5790 and finally 1.5810” Next support levels, according to Bednarik, stand as follows: “Supports from here will be 1.5715 (pullback to the mentioned trend line), the zone around 1.5680 and finally 1.5654.”
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• US Treasuries profit from safe haven buying
  Ongoing weakness in equities, this time on a Lehman report about Fannie and Freddie, supports Treasuries. The curve steepens in bullish fashion. All Treasury maturities are now at crucial resistance levels that if broken would improve the technical picture. The calendar is again unexciting today, but equities and oil will keep traders awake.
• European bonds try to break above first key resistance levels
  Yesterday, the European bond markets extended their recent gains above first important resistance levels. A confirmation today would signal sentiment is improving. Although inflation worries may still come back, market attention is currently focused on the economic woes. More equity losses would only further support the bond markets.
• Renewed credit concerns block dollar rebound
  The dollar took a strong start to the new trading week, but resurfacing (US) credit concerns block the rebound of the US currency. The technical picture for the major dollar cross rates remains highly indecisive. For now, the G8 meeting also provides no trigger to unlock the current deadlock.

The Sunrise Headlines

• US equities continue their slide and close 0.50% (Dow) and 0.8% (S&P) lower, as financials (Lehman report) and energy (drop oil) sell off. Tech sector outperforms
• Asian equities fall overnight on renewed nervousness on the financial sector following Wall Street
• World economy faces uncertainty and downside risks, also due to oil, says G-8
• US bank shares plummeted to lowest level in a decade on more analysts’ reports on soaring credit losses and fears Q2 earnings will again disappoint.
• Freddie Mac and Fannie Mae sharply down on Lehman report that suggests they may need more capital (75 billion $), also because of a change of accounting rules.
• Crude oil fell sharply yesterday in a profit taking move that hit other commodities too, down 3.92 $ to 141.37 $/barrel during another volatile session, but is half a dollar higher overnight on the first hurricane alert of the year and supply concerns at Mexico oil field.

Currencies: Renewed Credit Concerns Block Dollar Rebound

On Monday, EUR/USD trading first was mostly driven by technical factors as the calendar was thin. The dollar was well bid at the start of the new trading week pushing EUR/USD to the 1.5620 area at the start in Europe. Expectations for the G8 to take a bolder approach to slow the decline of the US dollar were a good excuse to drive EUR/USD lower in the established range. German production data came out weak, while sliding oil prices were a support for the USD, too. However, later in US trading credit concerns came again into the spotlight as a US investment bank published a report that Fannie Mae and Freddie Mac might need to raise a huge amount of additional capital. So, at least for now, negative (US) credit related headlines apparently are a factor of importance for the US currency. EUR/USD recouped the early losses and closed the session at 1.5728 compared to an1.5706 close on Friday.

Today, the European calendar is again empty. In the US some second tier data will be published. From an intraday perspective we keep an eye on the pending home sales. Mr. Bernanke speaks on financial regulation. This is important, but if he wants to address market sensitive items, its appearance before the House Financial Services Committee on Thursday probably is more suitable. Markets will also continue to watch the G8. However, at least for now, the meeting didn’t yield many high profile comments on the dollar. The statement after the second day only had a message on emerging markets as it said that ‘In some emerging economies with large and growing current account surpluses, it is crucial that their effective exchange rates move so that necessary adjustments will occur’.

Already for some time, we have a neutral bias on EUR/USD and assume the pair to extend its sideways trading in the wide 1.6020 to 1.5285 range. The US and Europe both faces a similar context of low/slowing growth and the Fed and the ECB have very little room of maneuver. The ECB is more inclined to take bold interest rate action, which is a short-term positive for the single currency, but last week Trichet also indicated that he will be cautious in modeling its monetary response to the inflation threat. So, the prospects for additional interest rate support for the euro are limited.

Technically, EUR/USD tested the key 1.5842 area last week. However a break could not be sustained and after the US payrolls and the ECB press conference, EUR/USD fell back in the longstanding sideways range. The short-term momentum is still slightly euro positive and the single currency still gets the benefit of the doubt in times of renewed market stress. However, we hold on to our view that we don’t see many fundamental arguments for EUR/USD to move aggressively higher over time. If the eco situation in Europe continues to deteriorate, markets will question the adequacy/room for additional ECB interest rate hikes and if the ECB sticks to a tough anti-inflationary approach, it might push the economy over the cliff, killing growth and laying the groundwork for a euro decline

EUR/USD: dollar rebound blocked by renewed credit woes

Support stands at 1.5673 (Break-up) 1.5627/11 (Daily envelope + Bollinger mid-line/St low) and at 1.5576 (MT break-up hourly), at 1.5535/27 (Reaction low/MT Break-up + weekly envelope).

Resistance is seen at 1.5741/52 (STMA/Reaction high), at 1.5765/73 (daily envelop breakdown daily), at 1.5795 (62% retracement ST), at 1.5874/94 (breakdown hourly/Bollinger top), at 1.5909 (Reaction high).

The pair is in neutral territory

USD/JPY

On Monday, USD/JPY trading showed two different faces. In Asia and early in European trading the dollar gained some ground. A cautiously better sentiment on the equity markets, a lower oil price and markets betting on USD positive comments for the G8 caused USD/JPY to test offers in the 107.75 area early in US trading. However, later in the session renewed credit woes and receding stock markets caused USD/JPY to give up its previous gains and the pair closed the session at 107.18, marginally higher compared to the 106.80 close on Friday.

This morning, there were only some second tier eco data on the agenda in Japan. Asian stocks feel the heat from the negative credit headlines in the US yesterday evening and this gives the yen some (albeit moderate support), capping the upside in USD/JPY.

Recently, we turned neutral on USD/JPY. The rejected test of the 108.58/62 area triggered a correction, but also this move petered out last week. The pair currently tries to regain the medium term moving average (106.90) and the uptrend line from the lows. If this attempt succeeds, it would improve the short-term technical picture. However, for the pair to resume the gradual uptrend of late beyond the key 108.60 area, an easing of global market tensions and/or a material decline in the oil price are needed. Those conditions are not fulfilled, convincing us to maintain a wait-andsee approach.

USD/JPY: dollar rebound blocked by renewed credit woes

Support stands at 106.81 (Daily envelope), at 106.73/63 (STMA/ST low), at 106.30 (LTMA), at 105.93/71 (Reaction lows + Bollinger bottom) and at 104.99 (Last week low).

Resistance comes in at 107.39/60 (Break-down/Uptrendline),at 107.75/77 (ST high/daily envelope), at 108.16 (Weekly envelope), at 108.58/62 (Reaction high/14 Febr. high).

The pair is in overbought territory

EUR/GBP

On Monday, EUR/GBP decoupled from the price action in EUR/USD. Poor UK production data fuelled fears that the UK economic is losing momentum at an accelerated pace and caused EUR/GBP to move higher from the 0.7920 area to around 0.7960 after the publication of the data. Later in the session, EUR/GBP hardly reacted to the rebound in EUR/USD, which was a dollar move initiated by negative headlines on the US mortgage agencies. Nevertheless, at the end of the session sterling still traded materially lower in a day perspective. EUR/GBP closed the session at 0.7959 compared to 0.7924 on Friday.

Today the UK calendar is again thin with only the DCLG house prices on the agenda.

Since mid April, EUR/GBP develops a very uninspiring consolidation pattern (0.7766/0.8098). We turned neutral on EUR/GBP recently as an attempt to move higher ran into resistance (0.7955 area) and as the pair shows no trading momentum at all. Last week, the pair again tried to move above that key resistance area on global euro strength, but also this attempt failed. In a day-to-day perspective, it looks as if the EUR/GBP pair is again traded with a slightly positive bias, but a sustained break above 0.8018 is needed to conclude that the pair is able to unlock the current stalemate. We hold on to our view that the room for a sustained comeback of the sterling is limited. The 0.7766 is the key range bottom that should provide strong support

EUR/GBP: stalemate persists.

Support comes in at 0.7941 (STMA), at 0.7928/21 (Break-up/daily envelope + MTMA), 0.7900/94 (ST low) at 0.7885 (Break-up), at 0.7868 (last week low) and at 0.7847/31 (S4, reaction lows).

Resistance stands at 0.7967 (Reaction high/Bollinger top), at 0.7978/80/86 (breakdown hourly/weekly envelope/Daily envelope) and at 0.8003 (Reaction high).

The pair is moving into overbought territory.

News

EMU: German production slows down

German industrial production plunged in May, as it fell 2.4%M/M to be up a feeble 0.8% Y/Y (5% Y/Y in April. Consensus was looking for a small rise. The decline was driven by a large 2.6% M/M decline in the cyclical manufacturing output, the second consecutive monthly drop. While special factors were probably at work, the report points to a sharp softening of activity in the industrial sector and a negative contribution to Q2 GDP. Q1 production was unusually strong due to weather-induced construction output.

Other: UK industrial production falls in May

In the UK, industrial output fell by 0.8% M/M and 1.6% Y/Y in May. The drop in output was mainly due to the manufacturing sector (-0.5% M/M) and energy supply (- 5.2%), as demand for electricity and gas declined because May 2008 was the warmest May on record across the UK. Within the manufacturing sector, there was a significant decrease in the machinery and equipment industries, which suggests that companies are reining in investments. This would be bad news, as also from the consumer side no improvement should be expected given the deteriorating situation on the housing market, labour market and the negative impact of inflation on disposable incomes.

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The U.S released its pending home sales for the month of May coming in at -4.7% worse than both the expected reading of -3.0% and the prior reading of 6.3%. While the wholesale inventories came in at 0.8% slightly better than the expected 0.7% but still lower than the previous 1.3%. Still the release of this news hardly moved the markets as Mr. Ben Bernanke spoke today saying he may extend direct loans to Wall Street this year in order to help the financial markets crisis, boosted the greenback in the market.

The single currency deteriorated in the market as Bernanke’s comments gave support to the dollar while taking the attention away from the euro. The EU Zone today lacked fundamental as the rise of the dollar, was the reason behind the slip of the euro. The EUR/USD is trading around the support of 1.5677 at 1.5673. The pair recorded a high of 1.5738 and a low of 1.5659.

The pound still remains weak on the back of the gaining greenback as the UK economy is also fundamental free. The rate decision this Thursday will help the sterling take a trend as the expectations show that the BoE will keep rates steady at 5% in fear of high inflation and sluggish growth. The GBP/USD is currently trading at 1.9704 while recording a high of 1.9795 and a low of 1.9690.

Currently in the market we see carry trades where investors buy high yielding currencies and sell low yielding currencies in which we call carry trades. The yen a victim to carry trades is currently seen losing ground in the market as the USD/JPY is currently trading between the support of 106.25 and the resistance of 107.45 at 107.30 while recording a high of 107.42 and a low of 106.24.

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Today’s Comment

Majors & Scandies

Risk aversion weighed heavily on the Asian stock markets following slides in the major US stock indices. It was the financial shares in particular that took the hardest blow, as funding concerns kicked in once again after a Lehman Brothers research report said that a pending accounting change could force Fannie Mae and Freddie Mac (the two largest mortgage lenders in the US) to raise a total of 75 billion USD in capital.

In the FX markets the JPY strengthened somewhat thus causing EURJPY to recede from recent highs. However for the time being we the technical case isn’t quite in place for a selling recommendation on the currency cross. Thus we prefer to maintain a neutral stance for the time being.

Yesterday the SEK weakened after having strengthened quite dramatically following the surprisingly hawkish statement made by Riksbanken after the monetary policy meeting on Thursday. Thus it seems like investors are awaiting macro economic data that shows whether the hawkish stance can indeed be justified or not. Hence the CPI data which is due for release on Thursday morning will be crucial for the short term trend in EURSEK. At this point we don’t believe that inflation in Sweden has peaked as food- and energy prices keep rising. Thus we also believe that short term risks on SEK are on the upside following the CPI data. For now however technical indicators suggest that there is a bit further to go on the upside on EURSEK (resistance around 942.50 - 943.00). Thus we prefer to maintain a neutral stance for the time being but will consider going short on the currency cross on a further correction higher towards the 943.00- area. More on this subject later.

Emerging Markets

Yesterday the markets were still celebrating that Thursdays ECB rate hike seems like being a ‘one off event’. And it is now likely ECB will stay unchanged at 4.25 % for the rest of 2008. However the party stopped when the US market opened and during the US trading session the local currencies lost what was gained during the European session. In general EM currencies have still performed well since the ECB meeting. As an example TRY has gained 3.4 % since the ECB meeting Thursday.

We will not get carried away by the gains we have seen since Thursday. We therefore maintain a defensive view on the emerging markets and stay neutral in most of our currencies. However we have two important changes today:

1) We almost reached our target in PLN yesterday. We move our take profit in EURPLN to 3.25 (PLNDKK 229.45) and have a tight stop profit at 3.32 (PLNDKK 224.61). Background: We think Poland will continue to perform in nervous markets.

2) In EURISK we open a new position. We buy EURISK at 119.2160 (selling ISKDKK at 6.26). We take profit at 126.00 and stop loss at 116.00 (take profit placed at 5.92 and stop loss at 6.43 in ISKDKK). Background: ISK has done very well lately - it is time for a correction.

Today’s key events

• 09:00 Consumer prices (CZK)
• 09:00 Unemployment (CZK)
• 09:00 Industrial production (TRY)
• 14:00 Fed’s Bernanke speaks (USD)
• 16:00 Pending home sales (USD)
• 18:30 Fed’s Lacker speaks on economic outlook (USD)
• 21:00 Consumer credit (USD)

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Overnight data failed to surprise the markets as major releases fit neatly within established themes already priced into the majors. Markets will be jittery into the US session as traders await Fed Chairman Ben Bernanke’s speech at the FDIC forum. Bernanke has recently used such events to talk up inflation risks, fueling speculation of looming rate hikes and strengthening the dollar. Should the Fed chief take a similar tone this time around, recent Euro and Pound selling pressure may substantially intensify.

Key Overnight Developments

Critical Levels

The Euro consolidated around the 1.57 level overnight following an upward jolt during US hours. As reported by DailyFX Chief Strategist Kathy Lien, the move was sparked by sharp selling of US equities. Technical Analyst Jamie Saettele expects EURUSD to continue to correct lower in the near term with support in the 1.5550-1.5600 area ahead of a return to historic highs above 1.60. Meanwhile, Sterling closed the US session just above support at 1.9744 and extended below it overnight. The selloff now threatens key support at 1.9583.

Asia Session Highlights

Overnight data failed to surprise the markets as major releases fit neatly within established themes already priced into the majors. New Zealand’s Business Opinion Survey remained static at -64 in the second quarter, remaining at the lowest levels since 1986. While this certainly does not bode well for the economy, it is hardly surprising to traders that have are already primed for the first RBNZ rate cuts since 1993 to materialize this year.

NIESR’s UK GDP Estimate highlighted the current tug of war between floundering growth and booming inflationary pressure. All bets appear to favor an anti-inflationary rather than a pro-growth stance, with NIESR’s own director noting that “despite the fact that the economy is now scarcely growing, we share the view that concerns about inflation make it more likely that interest rates will be raised than reduced in the coming months.'’ This confirms recent commentary by Bank of England Governor Mervyn King who forecast that the UK faces “a period of rising inflation and falling economic growth.” With the markets acutely aware of the BoE’s bias for some weeks, the release did not coincide with acceleration in existing GBPUSD selling into the Asian session.

The Australian dollar oscillated in a tight 23-pip range despite a dismal June Business Confidence report. The headline figure printed at the worst level since a spike low in September 2001. The Yen behaved in a similar fashion, as the lowest Eco Watchers Survey since 2001 failed to jolt USDJPY out of a 30-pip range.

Euro Session: What to Expect

Today’s session is virtually barren of event risk with May’s DCLG UK House Prices index the only item on the docket. We have already seen June’s Nationwide House Prices data, making this release profoundly backward looking and therefore unlikely to affect the market. In any case, Nationwide’s May result revealed prices fell -2.5% since April, suggesting today’s data will show the same pattern.

Markets will be jittery into the US session as traders await Fed Chairman Ben Bernanke’s speech at the FDIC forum. Bernanke has recently used such events to talk up inflation risks, fueling speculation of looming rate hikes and strengthening the dollar. Should the Fed chief take a similar tone this time around, recent EURUSD and GBPUSD selling pressure may substantially intensify.

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U.S. Dollar Trading (USD) with little data out today the Dollar took its cue from stocks and commodities. Initial speculation that the G8 would try to tackle the high cost of oil buoyed the Dollar during the Asian and European sessions before reversing on US stock weakness. More concerns from the banking sector lead by mortgage lenders Fannie Mae and Freddie Mac sent stocks spiraling lower dragging the dollar down as well. In the U.S. share markets, the NASDAQ was down 2 points (-0.09%) and the Dow Jones was down 56 points (-0.50%). Crude Oil closed down $3.70 ending the New York session at $141.20 per barrel. Looking ahead, Pending Home Sales are forecast to fall -2.4% in May from a 6.3% rise in April. Fed Chief Bernanke also speaks tonight.

The Euro (EUR) touched day lows as oil was sold off from last weeks record highs and ECB President Trichet reiterated his ‘no bias’ on rates comments. The Euro was able to recover as US Equities nosedived in the US session and oil and gold recovered some of there losses. Eurozone data was discouraging with German Industrial Production falling a surprising -2.4% in May after falling -0.2% in April. Overall the EUR/USD traded with a low of 1.5612 and a high of 1.5754 before closing the day at 1.5725 in the New York session.

The Japanese Yen (JPY) was well offered during the Asian and European sessions as equities gained on falling oil. A spike in risk aversion from more banking woes in the US though reversed these gains and left most crosses on the back foot. EUR/JPY performed well reclaiming the 168 handle and holding it throughout the day. Overall the USDJPY traded with a low of 106.62 and a high of 107.75 before closing the day around 107.20 in the New York session.

The Sterling (GBP) had a very volatile day, initially sold throughout the Asian session the losses gained momentum as more UK data came in weaker than forecasted. Both the Industrial (-0.8%) and Manufacturing (-0.5%) Output disappointed in May with both expecting a more modest -0.1% decline. The Cable was able to recover as the Euro bounced in the US session. Overall the GBP/USD traded with a low of 1.9796 and a high of 1.9848 before closing the day at 1.9928 in the New York session. Looking ahead, May Industrial Output (April, 0.2%) and Manufacturing Output (April, 0.1%) both expected at -0.1% m/m.

The Australian Dollar (AUD) took a break from recent strength falling hard across the board as commodities slumped on a stronger USD. Rising risk aversion hurt the AUD/JPY and EUR/AUD made good gains as the Euro recovered. Overall the AUD/USD traded with a low of 0.9515 and a high 0.9635 before closing the day at 0.9560.

Gold (XAU) bowed to general USD strength and falling Oil although the sharp fall in US stocks allowed gold to pare losses as safe haven flows increased. Overall trading with a low of USD$915 and high of USD$936.5 ending the New York session at USD$925 an ounce.

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