The Yen Reacts to ECB & US Interest Rates

Yen Declines to Lowest Since January on `Deteriorating' Economy

Aug. 6 (Bloomberg) -- The yen fell to the lowest since January against the dollar after Japan's government said the economy is ``deteriorating,'' acknowledging for the first time that the country's longest postwar expansion has probably ended.

The currency also fell against the Swedish krona, South Korean won and Norwegian krone on speculation the Bank of Japan will keep borrowing costs at 0.5 percent, encouraging Japanese investors to send money abroad for higher returns. The euro traded near a seven-week low against the dollar before a European Central Bank meeting tomorrow when policy makers are forecast to keep interest rates unchanged while acknowledging the region's economy is slowing.

``The Japanese economy is slipping into a recession,'' said Hidetoshi Yanagihara, senior currency trader at Mizuho Corporate Bank in New York. ``The concern is that Japanese interest rates are too low. This is one major reason people are selling the yen.''

The yen fell 0.7 percent to 109.14 per dollar at 10:15 a.m. in New York, from 108.35 yesterday. It touched 109.24, the lowest since Jan. 11. The euro traded at $1.5430, from $1.5454 yesterday. Earlier it touched $1.5409, the weakest since June 16. The euro advanced to 168.37 yen from 167.42.

South Africa's rand fell for a third day against the dollar as the country's biggest labor federation began a nationwide strike to protest higher power prices. The rand dropped 0.9 percent to 7.4493 per dollar as the one-day action shut mines and factories, reducing output from the world's biggest producer of precious metals.

`Entered a Recession'

The yen fell 0.9 percent against the South Korean won, 0.8 percent versus the Swedish krona and 0.7 percent against the Norwegian krone.

``There is a high possibility the economy has entered a recession,'' Shigeru Sugihara, head of business statistics at the Cabinet Office, said in Tokyo today.

Japan's benchmark interest rate is the lowest among developed nations, compared with 5.75 percent in Norway, 4.5 percent in Sweden and 5 percent in South Korea.

Japan's economy expanded at an average annualized pace of about 2.2 percent during the six years of growth that began in February 2002.

The ECB will keep its key interest rate at a seven-year high of 4.25 percent tomorrow, according to the median forecast of economists surveyed by Bloomberg News. ECB President Jean- Claude Trichet will hold a press conference after the rate decision tomorrow at 1:45 p.m. in Frankfurt.

`No Bias'

Trichet said on July 3 that he had ``no bias'' or ``pre- commitment'' after policy makers increased the main refinancing rate a quarter-percentage point.

``The ECB will send the message that they will keep the neutral stance,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank by assets. ``The risk is that they will acknowledge that growth is coming down faster than expected.''

Factory orders in Germany, adjusted for seasonal swings and inflation, declined 2.9 percent from May, the Economy Ministry in Berlin said today. That's the biggest drop since July 2007.

The inflation rate for the euro region accelerated to 4.1 percent in July, the fastest pace in more than 16 years and more than double the pace the ECB targets.

Traders pared bets the ECB will raise the main refinancing rate for a second time this year. The three-month Euribor contract for December yielded 5.04 percent, down from 5.06 percent yesterday.

The Federal Reserve left borrowing costs unchanged yesterday at 2 percent, saying ``downside risks'' to growth remain, while inflation is a ``significant concern.''

Berita Forex

Berita Fundamentals 25 Julai 2008

The Yen

JPY Falls on Downgrade, USD Edges Higher
by Korman Tam
The greenback was higher against the euro and yen, rising to 1.5669 and 107.90, respectively. The dollar continues to benefit from further declines in oil, which fell to $123.63 per barrel, and renewed confidence stemming from government measures to support Fannie Mae and Freddie Mac.

Hawkish Fed commentary has also propped the currency higher. The Fed's Plosser reiterated his view that current interest rates at 2% are pretty low and ultimately, rates have to go up. He said it was important to protect the Fed's credibility by reinforcing its commitment to low inflation through action. Plosser added that it would be too late if the Fed waited for inflation expectations to become unanchored.

Markets will look ahead to Thursday's economic reports consisting of weekly jobless claims and existing home sales. Weekly jobless claims are estimated to increase to 375k, up from 366k a week earlier. Existing home sales are seen slipping to 4.93 million in June units versus 4.99 million units a month earlier.

The Dollar & The Yen

Dollar Rises to Four-Week High as Fannie, Freddie Plan Advances

July 23 (Bloomberg) -- The dollar rose to a four-week high against the yen and advanced versus the euro as a U.S. government rescue of Fannie Mae and Freddie Mac moved closer to congressional passage and oil prices fell.

The currency also gained as signs of stability in the financial industry fueled bets that the Federal Reserve will raise interest rates in September. The yen touched a record low against the euro as reduced currency and stock volatility encouraged investors to add to holdings of higher-yielding assets funded in Japan.

``The government's backstop for Fannie and Freddie is containing systemic risk,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``It created a blue sky for the financial markets and gave a boost to the dollar.''

The dollar rose 0.4 percent to 107.81 yen at 10:59 a.m. in New York, from 107.33 yesterday. It reached 107.92, the highest since June 26. The U.S. currency appreciated 0.6 percent to $1.5687 per euro, from $1.5783. The yen gained 0.2 percent to 169.15 per euro, from 169.43 yesterday. It touched 169.96, the weakest since the euro's 1999 debut.

The Chinese yuan fell 0.1 percent to 6.8298 versus the dollar. China will slow the local currency's gains to about 3 percent in the second half of the year to help exporters weather a decline in global demand and rising costs, said Zhang Ming, a researcher at the Chinese Academy of Social Sciences in Beijing.

Fed Rate Outlook

Futures traded on the Chicago Board of Trade showed a 55 percent chance the Fed will increase its 2 percent target rate for overnight lending between banks by at least a quarter- percentage point by Sept. 16, up from 49 percent odds yesterday. Policy makers next meet Aug. 5.

Lawmakers reached a deal on legislation that authorizes the U.S. to bail out Fannie Mae and Freddie Mac, the two largest buyers of home loans.

Treasury Secretary Henry Paulson told reporters in Washington today the bill will send a ``very strong message'' to markets. The legislation is ``key to helping us turn the corner,'' he said.

The dollar touched a record low of $1.6038 per euro on July 15 as traders speculated that Fannie and Freddie, which own or guarantee almost half of the $12 trillion in outstanding home loans, would be forced to seek a bailout.

Better-than-expected earnings at Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo sparked a rally in global financial stocks last week.

`Bottoming Process'

``The gloomiest expectations for banking losses'' weren't realized, said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. ``The dollar is in a bottoming process.''

The yen dropped 0.8 percent to 215.46 against the pound and 0.3 percent to 68.12 versus the Brazilian real as the drop in volatility encouraged carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent compares with 5 percent in the U.K. and 12.25 percent in Brazil.

Implied volatility on one-month dollar-yen options touched 10.775 percent, the lowest since July 14. The VIX index, an indicator of U.S. stock option volatility, touched the lowest level in almost a month. Reduced price fluctuation makes carry trade profit easier to predict.

The euro extended its decline versus the dollar as a report showed industrial orders in the euro region fell in May more than twice as much as forecast. Orders dropped 3.5 percent from April, the European Union statistics office in Luxembourg said today, compared with a 1.3 percent decline predicted by economists in a Bloomberg News survey.

Yield Spread

The yield on the U.S. two-year Treasury note increased 6 basis points, or 0.06 percentage point, to 2.77 percent. The yield advantage of the comparable-maturity German bund decreased to 180 basis points, the narrowest since June 25, making U.S. securities more attractive.

Crude oil for September delivery fell for a second day, declining 1.4 percent to $126.18 a barrel. It has dropped 15 percent from a record $147.27 a barrel reached July 11. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes.

The Fed will issue its Beige Book report, a survey of regional economic performance, at 2 p.m. today in Washington. Economic growth was ``generally weak'' in April and May as consumer spending slowed, the Fed said in its June 11 report.

USD Dollar

Dollar Advances as Paulson Stresses Support for U.S. Currency

July 22 (Bloomberg) -- The dollar rose the most against the euro in almost a week as Treasury Secretary Henry Paulson voiced support for the currency and the Federal Reserve Bank of Philadelphia president said interest rates should be raised.

The US Dollar Weakens

Dollar Weakens on Concern Crude Oil Prices May Prolong Slowdown
July 9 (Bloomberg) -- The dollar fell the most against the euro in a week on concern crude oil prices may prolong the slowdown of the U.S. economy.
European Central Bank President Jean-Claude Trichet said the level of inflation is ``worrying.'' South Korea's won rose against all of its major counterparts on speculation the government intervened to boost the currency.
``The resilience of oil prices makes an extended rally in the dollar unlikely,'' said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York.
Against the euro, the dollar fell 0.3 percent to $1.5721 at 12:25 p.m. in New York, from $1.5670 yesterday. The U.S. currency dropped 0.3 percent to 107.23 yen, from 107.50. The yen was little changed at 168.56 per euro, compared with 168.45.
Trichet told the European Parliament in Strasbourg, France, today that risks to price stability have ``intensified'' over recent months. He also said it's important for the U.S. to keep repeating support for a strong currency.
The dollar has fallen 11 percent against the euro since September, when the Federal Reserve made the first of seven reductions in its target rate for overnight lending between banks, now at 2 percent, to prevent the housing slump and credit market losses from plunging the U.S. economy into a recession.
Oil prices are 88 percent higher from a year ago. Crude oil for August delivery increased as much as 1.7 percent to $138.28 a barrel after Iran said it carried out a test of a missile capable of hitting Israel. The exercise, reported on Iranian state television, raised concern that Israel will attack the Mideast's second-biggest oil producer.
Oil and Currencies
The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time in the past year, according to Bloomberg calculations based on the correlation of their value.
``We've not broken the back of the current uptrend of oil prices so far,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon. ``That's not favorable for the dollar.'' The firm is the world's largest custodial bank, with more than $23 trillion in assets under administration.
The Canadian currency increased 0.8 percent to C$1.0110 per U.S. dollar, and the Norwegian krone rose 0.4 percent to 5.1146 versus the dollar. Commodities such as crude oil and gold account for 54 percent of Canada's exports, while Norway is the world's fifth-largest oil supplier.
Dollar Index
The Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six U.S. trading partners, fell 0.5 percent to 72.640.
South Korea's won strengthened beyond 1,000 per dollar for the first time in two months. The government probably sold more than $12 billion dollars in exchange for the won since the end of May to support the local currency and stem inflation, according to Jung Chan Ho, a currency dealer at Shinhan Bank, a unit of South Korea's second-biggest financial group. The won increased as much as 3.5 percent to 996.62 per dollar.
South Africa's rand climbed 1.1 percent to 7.6544 per dollar, a one-month high, on speculation a proposed merger between MTN Group Ltd., Africa's biggest mobile phone company, and India's Reliance Communications Ltd. may boost foreign capital inflows into South Africa.
Traders raised bets that the ECB will raise borrowing costs again to curtail 4 percent annual inflation, twice policy makers' 2 percent target. The implied rate on the December Euribor interest-rate futures contract rose 0.02 percentage point to 5.12 percent.
`No Bias'
Trichet said last week that he has ``no bias'' for monetary policy after increasing the ECB's main refinancing rate a quarter-percentage point to 4.25 percent.
The yield advantage of two-year German bunds over comparable-maturity Treasury notes rose to a one-week high of 1.97 percentage points, making the European securities more attractive to investors.
``The risk is that the ECB will raise interest rates again,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``That will keep the euro relatively supported.''
The dollar rose against the euro yesterday after Fed Chairman Ben S. Bernanke said he may extend an emergency-loan program for securities firms into next year. Bernanke added in a speech in Arlington, Virginia, that the Fed is committed to financial stability.
He and U.S. Treasury Secretary Henry Paulson are scheduled to testify before Congress tomorrow.

Fundamental News

Dollar Rises

Dollar Rises as Bernanke Says Fed May Extend Lending Into 2009
July 8 (Bloomberg) -- The dollar rose against the euro for the first time in three days as Federal Reserve Chairman Ben S. Bernanke said the bank may extend securities dealers' access to direct loans into 2009.

Euro Falls as Trichet Signals One Rate Increase May Be Enough

Euro Falls as Trichet Signals One Rate Increase May Be Enough
July 3 (Bloomberg) -- The euro fell the most against the dollar in more than two months after European Central Bank President Jean-Claude Trichet signaled that he may not increase interest rates again.
The 15-nation euro also dropped against the pound as Trichet said that he has ``no bias'' or ``pre-commitment'' following the decision to raise the ECB's main refinancing rate by a quarter-percentage point to 4.25 percent.
``Trichet obviously disappointed market expectations,'' said Samarjit Shankar, director of global strategy for the foreign-exchange group in Boston at Bank of New York Mellon, the world's largest custodial bank, with about $23 trillion in assets under administration. ``He wants to start with a clean slate, and that has taken away a lot of expectations of further rate hikes.''
The euro dropped 1.2 percent to $1.5688 at 12:32 p.m. in New York, from $1.5882 yesterday. It rose to the all-time high of $1.6019 on April 22. Against the pound, the euro deceased 0.6 percent to 79.20 pence, from 79.70 pence. The dollar appreciated 0.8 percent to 106.71 yen, from 105.91. The euro fell 0.5 percent to 167.40 yen, from 168.20.
Today's interest-rate increase will help the central bank bring inflation back below 2 percent, Trichet said at a press conference in Frankfurt. Economic growth may weaken to 1.5 percent next year from 1.8 percent this year and 2.6 percent in 2007, according to ECB staff.
Trichet's comments helped counter a Labor Department report showing U.S. employers eliminated jobs in June for a sixth consecutive month.

Dollar Falls to Two-Month Low Against Euro on ADP Jobs Report

Dollar Falls to Two-Month Low Against Euro on ADP Jobs Report

July 2 (Bloomberg) -- The dollar fell to a two-month low against the euro as a report showed U.S. companies shed more jobs last month than economists forecast, reducing bets that the Federal Reserve will increase borrowing costs next month.

The U.S. currency also weakened as economists predicted that the European Central Bank will raise its main refinancing rate by a quarter-percentage point tomorrow while the U.S. Labor Department will say employers eliminated jobs in June for a sixth straight month. The Australian dollar approached a 25-year high as retail sales grew at the fastest pace in six months.

Disorderly Decline in U.S. Dollar

Disorderly Decline in U.S. Dollar

June 30 (Bloomberg) -- A disorderly decline in the dollar remains a possibility as losses on U.S. assets pile up and the current-account deficit triggers ``a sudden rush for the exits,'' the Bank for International Settlements said.
The U.S. current-account deficit, the broadest measure of trade in goods, services and investment income, widened in the first quarter to $176.4 billion, the Commerce Department said on June 17. The U.S. needs to attract $1.9 billion a day from overseas to fund the gap. Foreign buying of U.S. assets rose in April to an 11-month high as total holdings of equities, notes and bonds increased by a net $115.1 billion, the Treasury Department said June 16.
The Dollar Index, which measures the currency against six major counterparts, declined 6 percent this year. The U.S. currency fell to an all-time low against the euro on April 22, when it reached $1.6019. Against the yen, it dropped to a 12- year low of 95.76 on March 17.
The Japanese currency is forecast to rise to 100 per dollar and 148 against the euro within a year, according to the median of analysts' estimates compiled by Bloomberg. The world's second-largest economy shrank at an annual 0.4 percent pace in the second quarter, a separate Bloomberg survey of 17 economists showed.

Pegerakkan Matawang Bulan Jun 2008

Bulan Jun 2008 menjadi sesuatu bulan yang tidak berpihak kapada Traders yang mengikuti Fundamental News. Matawang terbabit begerak tidak mengikut unjaran. Ada kalanya ia bergerak hala bertentangan, bergerak tidak ketahap unjaran biasa atau bergerak bukan dalam jangkaan masa.

Apa yang berlaku adalah satu perkara yang luar biasa. Ini bukan salah indicator atau signals yang diterima.

Dilaporkan dalam WSJ, Soros mengakui dia sedar kesilapan nya.

Jun 2008

The month of June could be one of the worst nightmares of Fundamental Traders. The market either moved in a different direction to the news release or in some cases short / beyond the normal forecasts. There are cases, the move is not within the expected timeframe.

If you did not perform well for last month be assured that you are still on the right track. There’s nothing wrong with your indicators, judgment or signal provider.

It was reported in WSJ that Soros admitted that he “realized his mistake”.

Increased Risks to Inflation

FOMC Unchanged, Increased Risks to Inflation
by Korman Tam

The Federal Reserve, as expected, held monetary policy unchanged at 2% when it announced its decision shortly after 2:00pm. However, the vote to leave rates unchanged was not by unanimous decision with Dallas Fed President Fisher voting in favor of a rate hike. Although the dollar initially jumped higher following the announcement, it quickly relinquished those gains as traders digested the accompanying statement.

FOMC and Interests Rate

June 25 (Bloomberg) -- The dollar was little changed against the euro before the Federal Reserve ends a two-day meeting at which policy makers are forecast to keep the target lending rate at the lowest level in more than three years.

The dollar pared its decline as crude oil prices fell on an unexpected increase in inventories, reducing the need to sell the U.S. currency as a hedge against inflation. Fed Chairman Ben S. Bernanke said on June 9 the central bank would ``strongly resist'' a leap in inflation expectations.

The Dollar Drops

Dollar Heads for Weekly Drop on Pared Bets Fed to Raise Rates

June 20 (Bloomberg) -- The dollar was headed for its biggest weekly drop against the euro in almost three months on speculation the Federal Reserve will delay increasing interest rates to protect the U.S. economy.

Dollar Rises as Traders Buy Pound

Dollar Rises as Traders Sell Euro Versus Greenback to Buy Pound

June 19 (Bloomberg) -- The dollar rose against the euro for the first time in four days after an unexpected surge in U.K. retail sales led traders to sell the 15-nation currency versus the greenback and buy the pound.

British sterling appreciated versus the euro and the dollar after a government report showed U.K. retail sales increased in May the most since records began in 1986. The Swiss franc retreated after the central bank left its target lending rate at 2.75 percent, one of the lowest among industrialized countries.

GBP Rallies, Oil Retreats

GBP Rallies, Oil Retreats

by Korman Tam

6/19/2008 3:20:00 PM

The greenback edged higher against the euro in the Thursday session rising to 1.5468 on the heels of a pullback in oil prices. Prompting the retreat in oil were reports that China would raise retail prices for gasoline by 17% -- sending contracts for WTI crude to $132.50 per barrel. Nonetheless, the major currency pairs have remained confined within ranges as traders continue to gauge the direction of global interest rate differentials.

With markets largely expecting the ECB to hike rates by 25-basis points in July to 4.25%, the focus will be on the timing of the FOMC's next move. Fed fund futures are currently pricing in a 50% probability for a 25-basis point rate hike by the August meeting. Meanwhile, the SNB left its monetary policy unchanged when it announced its decision overnight with Bank President Roth saying "there is enough reason to suggest the current inflationary trend is of a transitory nature".

US economic reports released in the Thursday session included weekly jobless claims, the June Philadelphia Fed survey and May leading indicators. The weekly jobless claims number fell to 381k versus 384k from the previous week while the May leading economic indicators held steady from a month prior at 0.1%. However, the Philadelphia Fed survey reflected continued weakness in manufacturing with the report deteriorating to minus 17.1 and missing estimates for an improvement to minus 12.0 from minus 15.6.

FREE FOREX SIGNALS : GBPJPY 16 JUN

GBPJPY
LONG position at 211.50
STOP LOSS below 210.50 (-100 pips).
THE TARGETS are 212.84 / 212.38 / 212.74
OP, SL & TP at your own risks

GBPJPY

GBP JPY is in a consolidation after the last bullish movement. There is an horizontal range between 209.60 and 210.20. If the resistance is broken then the target will be 214.00.

Lookout for a break of resistance to take a long position.

GBPJPY
LONG position at 210.20
STOP LOSS below 209.20 (-100 pips)
THE TARGETS are 210.60/ 210.88/ 211.22
OP, SL & TP at your own risks

Dollar Rises Against Euro as Stocks Increase, Crude Oil Falls

Dollar Rises Against Euro as Stocks Increase, Crude Oil Falls

June 9 (Bloomberg) -- The dollar rose against the euro for the first time in three days as U.S. stock indexes advanced and crude oil prices fell.

The U.S. currency strengthened from a six-week low as the yield advantage of German government debt over comparable- maturity Treasuries narrowed. The dollar fell last week the most against the euro in two months. The yen dropped versus all of the major currencies today after a government report indicated Japan's longest postwar expansion may be over.

``We're seeing a correction to what have been some pretty dramatic advances of the euro,'' said Nick Bennenbroek, head of currency research in New York at Wells Fargo & Co. ``The market is pausing for breath.''

The dollar increased 0.6 to $1.5683 per euro at 10:30 a.m. in New York, from $1.5778 on June 6. It touched $1.5843, the weakest level since April 24. The yen dropped 1.3 percent to 106.26 versus the dollar, from 104.93. Japan's currency decreased 0.7 percent to 166.67 per euro, from 165.54. It touched 167.14, the weakest since Nov. 7.

The British pound appreciated 0.4 percent to 1.9794 against the dollar and 0.6 percent to 1.2562 against the euro after a government report showed producer-price inflation accelerated to the fastest pace in two decades in May. The Bank of England held the target lending rate at 5 percent last week.

Weaker Yen

The yen fell 1.2 percent to 209.28 against the pound and 0.9 percent to 64.79 versus the Brazilian real as Japan's Cabinet Office said the economy may be reaching a ``turning point.'' The government hasn't described the world's second- largest economy in such terms since the most recent recession in 2001. The coincident index, a measure of current economic activity, fell to 101.7 in April, from a revised 102.4 the previous month.

The dollar remained higher versus the euro as an industry report showed an unexpected increased Americans signing contracts to buy existing homes in April. The index of pending home resales rose 6.3 percent to 88.2, the highest level in six months, following a 1 percent drop in March, the National Association of Realtors said today in Washington. The median forecast of 32 economists was for a 0.4 percent drop.

The U.S. currency got a boost against the yen as Lehman Brothers Holdings Inc. said it will raise $6 billion in capital in a public offering. The New York-based firm reported a record $2.8 billion second-quarter loss.

Trichet and Dollar

The dollar dropped 1.4 percent against the euro last week after European Central Bank President Jean-Claude Trichet said in Frankfurt that policy makers may raise borrowing costs in July to contain inflation and the U.S. Labor Department reported that the unemployment rate increased the most in May in more than two decades. It was the euro's biggest weekly gain versus the dollar since late March.

Markets have understood the ECB's position on inflation ``quite well,'' council member Nout Wellink, who also heads the Dutch central bank, was quoted as saying in a June 6 interview with Market News International published today.

The ECB will lift the main refinancing rate twice this year as inflation exceeds the central bank's target, taking it to 4.5 percent by year-end, according to interest-rate futures trading. The implied yield on the December Euribor futures contract rose to 5.47 percent, from 5.39 percent on June 6. European two-year notes had their biggest decline in 4 1/2 months.

European policy makers last week kept their main refinancing rate at a six-year high of 4 percent, unchanged since last June. Trichet will speak at a forum in Paris at 6:30 p.m. local time. Federal Reserve Chairman Ben S. Bernanke, who said on June 3 that he's aware of the impact a falling currency can have on price expectations, will speak at a Boston Fed conference at 8:15 p.m. local time.

The dollar has fallen 11 percent against the euro and 9 percent versus the yen since September, when the Fed began to lower borrowing costs. Futures on the Chicago Board of Trade show a 77 percent chance the Fed will increase its 2 percent target rate by at least a quarter-percentage point by December, compared with 48 percent odds a month ago.

UBS AG, the second-biggest currency trader, cut its one-and three-month dollar forecasts against the euro to $1.60 and $1.53, from $1.50 and $1.47, previously.

The US Economy

Date: November 11, 2007
Author: Rob Grespi


1/ THE US ECONOMY:

Let me put it this way "cut and dry". I believe that the US economy will enter a severe recession borderlind depression within the next couple of years. Any consumption economy based on Visa/Mastercard is doomed to fail at one point or another, not a question of if, but when.

The US economy is led and has been led by a "crew" of self interested greedy pigs, incompetants and demagogues. All of them now share one thing in common: the loss of all credibility in the international financial market scene, not to mention others. When they speak nobody listens anymore or if they do, they do it to get a good laugh. On the other hand, when the Chinese or Mr. Putin makes a statement the financial markets react immediately. If you stop and think aboout it, it is pretty sad to think the US leaders have become an act in a comedy show. I even take Will Ferrell more seriously than these guys.

Mr. Paulson, US Treasury Secretary, supposedly a man we should all listen to, is known as the "one speech man". Everywhere he goes he says only one thing: " A strong USD policy is in the best interest of the US". Maybe he thinks if he says it over and over someone will believe him. He actually took that rhetoric from his predecessor Mr. Snow, who also said the same thing for the previous six years or so. Keep in mind the USD has lost over 60 % of its value vs other major currencies in seven years time and has lost its "50 year supremacy" with it. These guys are obviously not looking at the dollar as the rest of us in the world are. This same bald headed ugly bozo, Mr. Paulson, said, while live on Fox News in the beginning of August 2007: "The US subprime credit problem is largely contained". Two weeks later the **** hit the fan and low and behold in September 2007 while traveling to India touting his one speech, he stated: " The US subprime credit problem will take longer to clean up...". No kidding.

Another flagrant demonstration of incompetence was shown when one of the "top and most respected" Fed amigos, Mr. Boone, quoted: Dollar decline unexplicable". Is this guy joking or what? Both of these top "Penderos" actually get paid to say these things.

MY POINT : During the last seven years the US Dollar has lost over 60% of its value over the Euro, GBP, CAD, AUD and others. THE USD has not seen its level below the CAD (is neighbor which btw now boasts a budget surplus) in over 40 years.

A. THE DEFICIT DEBACLE

The twin deficits (Budget and Trade Balance) are out of control. THe US is running the HIGHEST Budget Deficit in its history with a mere 8 trillion dollars or so and rising by a100 billion every month. I call it the "Bar Tab". The US Trade Balance is running a 50 to 60 billion deficit per month. Sounds outlandish, but go get into the nitty gritty details and the numbers are unfortunately there, glaring at us in the face.

The latest credit crunch the US is experiencing will have longterm effects for years to come. Even if the Fed lowers the rate to 0% to please the markets, it will only delay the inevitable. US credit institutions, after taking heavy beatings on their CDO investments, are in a shrinking mode, and will get more stingy to whom they loan their money to , consumers and businesses alike, thereby affecting longterm economic expansion. As harsh as it sounds this "credit excess" needs to be purged, not bandaided by the Fed. Purging it is, but ever so slowly for the moment.

The Fed is between a Granite Rock and a hard place. It needs to raise rates to attract the financing for the monthly financing of the gargantuan "bar tab", yet it needs to lower rates to try to avoid a recession. The Fed has chosen the latter to please the markets and its politicians, although a recession will follow anyway. After all, we are in an election year.

Who finances the huge US Bar Tab? The Chinese, Japan and the oil rich countries, that's who. All these big boys are getting nervous and irritable when they see their dollar holdings, whether it be the Treasuries they buy to finance the deficit every month or the Dollar reserve holdings they own, melting on a daily basis. A Chinese CB official said as much recently in a statement to Washington that I interpreted as: Stop turning the Dollar into **** or we will stop financing your orgies". Needless to say, the financial markets reacted violently to that.

What does a collapsing Dollar mean to the average American? It means ongoing "invisible" inflation and asset deflation. Both are being experienced now, slowly, but surely, whether the average American realizes it or not.

If the financiers of the deficit reduce or even stop buying the monthly Treasuries Auction (TIC), an important fundamental number to watch, the US leaders will have no choice but to make one of the following two choices:

1/ Find the money some other way (the only way I know is to raise taxes), and/or
2/ balance the budget, and we all know how good they are at balancing checkbooks...they balance their own pretty well tho...

Every time in history the US ran a deficit was to spur economic growth after a period of Recession.This time the US is running the largest deficit of all time during relatively "good times" thanks to a useless war. The US has thereby "blown its wad" before even the "bad times" are upon us. The believers (fools) of the credo "deficits don't matter" are about to get a big first lesson in "Economics 101".

THE RESULT: The current Administartion doesn't give a hoot about the deficit, among other serious outstanding issues they will leave behind, they only have one year left or so, and most of them have cushy high paying jobs lined up, book deals, or corporate contracts waiting for them. IT WILL BE SOMEBODY ELSE'S MESS TO CLEAN UP . WHO CARES?

B. REAL ESTATE

Pouring salt into the US' wounds is the Real Estate mess. Real Estate is cooked and far from seeing recovery and any bounces will only be "dead catbounces". Real Estate will keep on bleeding for a long time to come. The American dream to have a home, his castle, is washing awy like a sandcastle come high tide. Man's "castles" used as ATM machines in the recent past will now have serious consequences for years to come.

C. US EXPORTS

Regarding US exports, a funny line I keep hearing is: The Dollar's decline is good for our exports. "What exports ?" I ask. "Nike and Reebok products are made in China, Ralph Lauren and The GAP, ditto. Oh yeah, the same thing goes for computers. OK, perhaps American cars? Oh, they cannot be sold outside the US or Canada and GM itself still can't figure out how to turn a profit in the business, while Toyota is posting record profit." "No, no, no" says he says, "Ford is selling in Europe". Sure, this is true and they are very good cars, however they are made in SPAIN!!!! OK, I admit I still need to look into Boeing and heavy machinery, but the overall picture is pretty bleak. Well, as far as I know Budweiser is still made in the US, but I don't drink much beer and all my European friends that do don't drink Bud.
I know this tho, The ones that for sure are making money "hand over fist" are the Weapons industry and related military contractors as well as all lots of companies in oil industry and indirect supplying businesses.

NEWS FLASH for gullible believers of this mentality: The trade balance has not shown any significant improvement and the Dollar has shed 60% of its value.

THE BOTTOM LINE: The US is quietly suffocating under its massive twin deficits and flagrant financial mismanagement and is therefore about to pay a heavy price. At the end of the day, US taxpayers will pick up the tab, as usual. Our children and our children's children will pay the price for generations to come, unfortunately.

-----------------------------------------------------------------------------------

2/ EURO

The Euro should peak at 1.55s or so, however if it pops these levels decisively, the next level will be 1.80s which was the DMark equivalent in the 80's. The Euro is slowly gaining ground vs the Dollar as a trade and reserve currency. The ECB is still in a rate hiking mode because the main "mandate" of the ECB is to keep inflation in check. Historically speaking, keep in mind that Europeans are scared ****less of running inflation; it never brought them good luck. Look at Germany in the 30's, for example, the state of the economy provided just the right landscape to bring one of the most historically deranged loonies to power. I don't need to mention HIS name.... Therefore, Mr. Trichet is very "vigilant" with regard to inflation, which is currently an issue in Europe. The strong Euro is doing its work in his favor for the moment. The ECB is still in the "rate hiking mode" so the Euro will remain strong as long as the ECB stays this course. I don't see it changing any time soon. Any retracement, if at all, will be limited to 1.30s at which point it will rise back if the ECB sticks to its guns. Of course, if Europe gets invaded by aliens or nukes, the Euro could take a dive...


--------------------------------------------------------------------------------------

3/ GBP

The Pound should peak at 2.15/20, however should these levels pop decisively, look for 2.50s, the highs found during the 80's when Soros shorted the "Pansy Ass" out of the Pound and made a fortune, nearly bankrupting the BOE in the process. The key turning point to keep an eye out for a sustainable Pound decline will be when the BOE starts its rate cut cycle. This should start the 1Q 2008 and if the cycle is long enough, the Pound will see the 1.70s.

--------------------------------------------------------------------------------------

4/ GY

The GY will melt to 185/190 and possibly 150s as carry trades will be unwinded. The Yen, since it has almost 0% interest, is used as a borrowed currency vs Pound by Hedge Funds and other financial institutions. Hedge Funds will go out of business liquidating assets in the process. The funds that remain will invest in a wiser fashion, tempering, of course, the needs for excessine borrowed capital.
Also another additional key igniting factor will be when the BOJ hikes its rate and give an indication that a hiking cycle has started.

Last time I talked to my subscribers about a GY "meltdown" was back in June 2007 when I told them: "Chances are a meltdown will comle before Spetember 2007. We had a first demonstration in August 2007 when the GY went from 250s to 220 in two weeks. The next meltdown will be the real thing, a "10 on the Richter scale" instead of a 4.

-------------------------------------------------------------------------------------

5/ GOLD

I published articles over three years ago concerning gold. I have been preaching to my subscribers on KFS since its creation over a year and a half ago to buy gold when it was valued at $350/400. 3Buy gold on dips, you will see $1000" was part of my regular mantra. I told tem that there were several easy ways in which to buy gold:buy GLD (gold ETF) or buy GBS ( equivalent of GLD) but traded on the London Xchange. Settle the trade in Pounds ( the Pound at the time was $1.78 or so 18 months ago) thereby profiting from from the GBP rise, a two for one special if you will.

Technically speaking, if gold pops the $850 level decisively, it will see ( as old stale supplies are absorbed) $1000. If gold pops$1000 decisively we will see $2000. Key support levels are $550 and $450.
Also to consider: if the geopolitical landscape deteriorates it will also fuel the rise in gold. For example, if the US makes a daring move against Iran, gold could spike to $3000 if we all survive the catastrophic fallout.

KNOW THIS: Politicians HATE gold, which is the reason why they all got together and went off the Gold Standard, enabling them to print money without limits to finance their "hair brained" ideas or ludicrous promises. And print money they do... it's a 24/24 business.

Let me give you a figure to think about: in the 1970's there were $8K in circulation for every ounce of gold; today there is over $80K/ounce in circulation. The US has even stopped publishing the M3 two years ago or so. The official reason: "useless information". The real reason: they don't want you to know how much money they are rpinting every month.

I read an analysis a year ago that stated that 2/3 of the gold that exists had already been extracted from the earth over the past two thousand years. Of the gold that remains, some is in the bottom of the ocean and some is still in active mines where deeper and deeper digging is required to get to it. Some of these mines are in politically unstable countriesat the mercy of the Government "du jour".

The days of going Westto pan for gold nuggets are long gone. If they weren't, gold panning would be my weekend hobby.

Let me give you an interesting historical fact: the Roman Empire lasted almost 500 years. The issuance of metal coins rather than gold coins to pay for trades, good and services marked the onset of the decline of the Roman Empire. Why the switch? The Romans were BROKE. The Romans faced a vicious cycle. They needed to invade other countries in order to retrieve valuable resources, manage those lands and those whom they conquered, subsequently spreading their own resources and men too thin. The Romans were everywhere at once and couldn't take care of or pay for business at home. Sound familiar????

------------------------------------------------------------------------------------

6/ URANIUM

The oil era is already over (people just don' know it yet). Uranium is what's next nad here's why:

Make no mistake, we are in a silent energy war and the countries that have the foresight to position themselves early will be the winners.

Within the next 10 to 15 years uranium will experience the biggest boom you have ever seen. The boom has already started and prices have quietly risen from $10 in 2000-01 to $150 today and the rise is far from over. Astute investment funds have been quietly accumulating positions in uranium stocks and are in no hurry to see the creation of an ETF, however when such an ETF gets created, I will jump all over it. Presently, the only alternative is to try to buy the right stocks. That's the tricky part. Let me give you something to think about first: France does not have the reputation to have had great foresight over the past 100 years, but when it comes to nuclear energy, France was right on the money and is currently the worldwide leader in the nuclear power and energy business. The US does not even come close. Here's what happened: during the oil shock back in the 70's President Georges Pompidou green lighted a full scale nuclear power development project. He did not want France to be denied electricity or held with her hands tied at the mercy of the oil producing countries. He told the people of France that within the next 10 to 15 years France would produce almost 100% of its electrical needs via nuclear energy that would result in the cheapest and cleanest energy in Europe. The amount of taw the French pay for their electricity is another issue altogether. That's Sarko's problem! Well, for once, this President in particular (Pompidou) wasn't lying telling the public what they wanted to hear. HE WAS CORRECT. The program was further developed during the reign of Valery Giscard D'Estaing. Today, France produces so much electricity that it sells is to neighboring countries such as Spain and Italy. France became and remains the world leader in building and maintaining safe nuclear power plants throughout the world. One company you should all look at is AREVA (arevagroup.com).

Today China and Russia are quietly positioning themselves for their respective futures. Well, they are not even that quiet about it for that matter. China has placed an order with Areva to build 30 to 50 nuclear power plants while Russia has ordered some 40 of their own. France, China and Russia (thanks to Putin's leadership and foresight) have secured uranium contracts from stable uranium rich countries such as Australia, Canada ans certain stable African countries.

Mr. Putin was only too happy to see the US "farting around" in Iraq to bring about democracy or scampering among the bullets to find WMD (not sure which of the two are valid excuses today). Mr. Putin knew that while the US is busy fighting for a few barrels of oil and construction contracts, it would be distracted from creating a real enegy plan for America's future. So, when the uranium boom takes place, Russia will be sitting pretty and the US will find itself **** out of luck and again at the mercy of other countries for its energy needs. Mr. Bush and all his "oil crew" will be dead by then (very rich, but dead), and the US will not know what happened. I already feel sorry for America's future generations.

Here are a few stocks I like: AREVA, BHP BILLITON, CAMECO, MEGA URANIUM, PINETREE CAPITAL. PLEASE DO YOUR OWN RESEARCH!!!! Also, as I said, as soon as a uranium ETF gets created I will jump all over it like "horny sailors on cheap whores".

------------------------------------------------------------------------------------

7/ WATER

For the longterm, consider investing in stable water producing and purification companies. Water will become a scarce commodity: people will fight over it.

The water infrastructure systems in major US cities, not to mention in many countries are due for major overhaul within the next ten years. Look at worldwide leader Veolia.


-----------------------------------------------------------------------------------

Lastly, to quote the founder of the Rothschild family fortune: " When blood is on the street, buy properties".

That's it, and best of luck for 2008.

As always,
Best Regards,
Rob Grespi

Interest Rate statement

UK Interest Rate statement.

It is expected they will hold the rates at 5.00%.

BUY GBPUSD

Rate increased to 5.25%, BUY GBP/USD for 70 pips.

SELL GBPUSD

If the rate is cut, SELL GBP/USD for 70 pips..

The Dollar Bullish

June 4 (Bloomberg) -- The dollar traded near a two-week high against the euro after a report showed U.S. services industries expanded in May at a faster pace than forecast, indicating the economy is weathering record gasoline prices.

Dollar Rises to Two-Week High Versus Euro on Bernanke's Remarks

Dollar Rises to Two-Week High Versus Euro on Bernanke's Remarks

June 3 (Bloomberg) -- The dollar rose to a two-week high against the euro and increased versus the yen as Federal Reserve Chairman Ben S. Bernanke said the central bank is ``attentive'' to the implications of the U.S. currency's decline.

Traders interpreted the remarks as a sign that policy makers are done cutting interest rates as the weakened dollar causes the price of imports including crude oil to rise, sparking inflation. Oil and gold dropped today. The U.S. currency has tumbled 9 percent against the euro and the yen since the Fed began cutting the target lending rate on Sept. 18.

``It could be a turning point for the dollar,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, the world's largest custodial bank, with more than $20 trillion in assets under administration. ``It's very unusual for a sitting Fed chairman to talk about the dollar explicitly.''

The U.S. currency rose 0.5 percent to $1.5458 per euro at 4:05 p.m. in New York, from $1.5537 yesterday. It touched $1.5411, the strongest level since May 14. The dollar increased 0.7 percent to 105.13 yen, from 104.43. The euro was up 0.2 percent to 162.53 yen, from 162.26.

Sweden's krona gained the most in almost four months versus the euro after the central bank said the country's lenders have weathered the credit-market crisis. The currency rose 0.5 percent to 9.3326 per euro after Riksbank Governor Stefan Ingves said Sweden's banks have ``so far succeeded in resisting the financial turmoil relatively well.''

Fed on Currencies

Bernanke raised his biggest concerns yet about the effects of the weakened dollar via satellite to the International Monetary Conference in Barcelona, Spain. The Fed is working with the U.S. Treasury Department to ``carefully monitor developments in foreign exchange markets'' and is aware of the effect of the dollar's decline on inflation and price expectations, he said.

U.S. import prices rose 15.4 percent in April, the biggest increase since the Labor Department's index began in 1982. Crude oil reached a record $135.09 a barrel on May 22.

When asked for their opinions on the dollar, Bernanke and other Fed officials tend to defer to the Treasury, which is responsible for currency policy. The Fed chief meets weekly with Treasury Secretary Henry Paulson, who yesterday repeated his backing for a strong U.S. currency.

``Bernanke is now saying that he also has an interest in the level of the currency,'' said Torsten Slok, a U.S. economist in New York at Deutsche Bank AG, the biggest currency trader. ``If the last bastion of dollar weakness -- U.S. indifference -- is falling away, the dollar may rally.''

ECB's Trichet

European Central Bank President Jean-Claude Trichet also spoke at the Barcelona event, reiterating that ``monetary policy stays firmly focused on delivering price stability.''

The dollar has increased 3.5 percent since touching the all-time low of $1.6019 per euro on April 22, as the Fed signaled it will stop cutting interest rates. Since the central bank's decision in mid-March to arrange $39 billion of financing to facilitate the takeover of Bear Stearns Cos. by JPMorgan Chase & Co., the yield on the 10-year U.S. Treasury note has increased 0.50 percentage point to 3.90 percent, making dollar- denominated assets more attractive.

Futures on the Chicago Board of Trade show a 62 percent chance the Fed will raise the 2 percent target rate for overnight lending between banks by at least a quarter-percentage point in December, compared with 50 percent odds a month ago. The central bank has made seven reductions totaling 3.25 percentage points since September.

`New Reality'

``The threshold for further Fed easing is now higher,'' Jens Nordvig, a strategist at Goldman Sachs Group Inc. in New York, wrote in a research note today. ``We would not be surprised to see the dollar trade stronger versus major currencies in coming weeks as the market fully incorporates this potentially important new reality.''

The U.S. Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six major trading partners, increased for a second day, touching 73.501, the highest since May 15.

The dollar's gains against the euro may erode before the ECB's meeting on June 5 and the U.S. Labor Department's payroll report the next day, according to Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York.

`Ahead of Itself'

``We are suspicious that the sharp dollar rally today is getting ahead of itself,'' Chandler wrote in a research note today. ``It's all the more true given that the two key sources of event risk still lie ahead.''

The ECB will keep its main refinancing rate at a six-year high of 4 percent, according to all 59 economists surveyed by Bloomberg News. The U.S. probably lost 60,000 jobs in May, after a decrease of 20,000 the prior month, according to the median forecast of 78 economists in a separate Bloomberg survey.

The dollar will strengthen to $1.49 against the euro and 105 yen by the end of the year, according to the median forecast of 44 economists surveyed by Bloomberg News.

Bernanke's Warning On Inflation Boosted Dollar

Bernanke's Warning On Inflation Boosted Dollar
by Yan Xu

The dollar rallied across the board after Fed Chairman Ben Bernanke unexpectedly warned of inflation risk via satellite before International Monetary Conference Central Banker's Panel in Spain. He said the central bank is "attentive to the implications of changes in the value of dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate". This is the first time Bernanke highlighted the impact of dollar weakness on rising inflation, indicating that the central bank is not going to cut rates again. The dollar gained around 1% to 105.54 versus the yen. The euro slipped almost 200 pips from 1.56 to as low as 1.5412 against the dollar.

Interest rate futures on the Chicago Board of Trade showed a nearly 70% chance that the Fed will raise interest rates above 2.00% by the end of this year.

A report released later pushed the greenback even higher. US factory orders rose 1.1% in April, beating the estimate of 0.1%. In the same month, durable goods orders fell 0.6% as expected while core durable goods orders rose 2.4%.

Fundamental News Today

US:Motor Vehicle Sales

AU:RBA Announcement
12:30 AM ET

EMU:GDP
5:00 AM ET

EMU:PPI
5:00 AM ET

US:ICSC-UBS Store Sales
7:45 AM ET

US:Redbook
8:55 AM ET

US:Factory Orders
10:00 AM ET

AU:GDP
9:30 PM ET

The Pound, Yen and the Dollar

Pound Falls, Yen Rises on Speculation Credit Losses Spreading

June 2 (Bloomberg) -- The pound fell and the yen advanced on speculation spreading credit market losses at banks will result in slower economic growth and discourage policy makers from raising interest rates.

Sterling dropped the most in more than three weeks versus the dollar

ISM Manufacturing Index

USDJPY : ISM Manufacturing Index

BUY USDJPY

If it is 49.5 or higher target for 30 pips.

SELL USDJPY

If it is 47.5 or lower and target for 30 pips.

Dollar Monthly Gain Againsts Euro, Yen

Dollar Heads for Monthly Gain Against Euro, Yen on Rate Outlook

May 30 (Bloomberg) -- The dollar was headed for a second straight monthly advance against the euro and yen as signs of improving economic growth boosted investor confidence in U.S. assets.

The U.S. currency also traded close to a three-month high versus the yen as traders bet the Federal Reserve will raise interest rates later this year. The dollar pared its monthly gain against the euro today as private reports showed a measure of U.S. business activity shrank in May, while manufacturing in the Milwaukee area was the weakest in five years.

``The idea that the Fed will continue to cut rates has been completely put to bed and the market is now flirting with the idea of a rate hike,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``That has given the dollar a boost.''

The dollar touched $1.5461 per euro, the strongest level since May 16, before weakening to $1.5550 as of 11:23 a.m. in New York, from $1.5519 yesterday. It has risen 0.4 percent this month. The dollar traded at 105.51 yen, from 105.50 yesterday, when it reached 105.87, the highest since Feb. 28. It has gained 1.5 percent this month against the yen. The euro rose to 164.10 yen, from 163.71 yen yesterday.

Brazil's real was the biggest gainer this month among the 16 most-traded currencies versus the dollar, rising 2.2 percent. South Korea's won, with a 2.7 percent drop, was the weakest.

Income Growth

The dollar got a brief boost after a government report showed personal income was stronger in April than economists expected. Incomes grew 0.2 percent, bolstered in part by the government's tax rebates, after a 0.4 percent increase the prior month. The median forecast was for a drop to 0.1 percent.

The U.S. economy expanded at a 0.9 percent annual pace last quarter, faster than the Commerce Department's April 30 estimate of 0.6 percent, the government said yesterday. U.S. durable goods orders excluding transportation equipment rose 2.5 percent in April. The median forecast in a Bloomberg survey was for a 0.5 percent drop.

``The data has been dollar-positive because they'll allow the Fed to keep rates where they are,'' said Greg Anderson, a foreign exchange strategist at ABN Amro Bank NV in Chicago. ``They show the opposite of stagflation.''

The National Association of Purchasing Management-Chicago said today its business index rose to 49.1 this month, higher than forecast, from 48.3 in April. Figures below 50 signal contraction. The NAPM-Milwaukee's monthly index of regional manufacturing fell to 45, from 48 in April.

German Consumption

The euro fell earlier after retail sales in Germany, Europe's largest economy, unexpectedly dropped in April.

Sales adjusted for inflation and seasonal swings fell 1.7 percent from March, when they dropped 2.2 percent, the Federal Statistics Office in Wiesbaden said. Economists in a Bloomberg News survey forecast a gain of 0.6 percent.

``Consumption in Germany is cooling down due to hefty oil prices,'' said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany's second-largest bank. ``In such a situation, the Fed could raise rates faster than'' the European Central Bank. The euro may fall to $1.52 by June 30, he said.

Britain's pound will fall to 81 pence against the euro in coming months as a weakening economy prompts investors to resume bets the Bank of England will add to interest rate cuts this year, according to a Dresdner Kleinwort note yesterday.

Euro Versus Pound

The euro rose to 78.63 British pence, from 78.51, after falling as low as 78.34 following the German retail sales report. The euro reached 80.98 pence on April 16, the strongest since its inception in 1999.

U.K. consumer confidence dropped in May to the lowest level since Margaret Thatcher was ousted from office in 1990, as people became more pessimistic that the economy will slip into a recession, GfK NOP Ltd. said today. The U.S. currency advanced to $1.9712 against the British pound from $1.9766.

Futures on the Chicago Board of Trade show a 29 percent chance the Fed will raise its target rate by a quarter- percentage point to 2.25 percent on Sept. 16, up from 19 percent a month ago.

Oil in New York traded at about $127 a barrel for delivery in July. Crude declined more than $4 a barrel yesterday, the biggest drop since March, as record prices reduced demand for fuel. The price is double a year ago.

Canada's dollar fell 0.6 percent to 99.36 Canadian cents per U.S. dollar from 98.77 yesterday after a government report showed the economy unexpectedly shrank in the first quarter, fueling speculation the central bank will cut borrowing costs next month.

The nation's central bank lowered the target lending rate by a half-percentage point to 3 percent on April 22. Borrowing costs have been cut four times since December from 4.5 percent. Policy makers meet on June 10 to decide on rates.

U.S. GDP, Initial Jobless Claims and Core PCE.

U.S. GDP, Initial Jobless Claims and Core PCE.

The PCE will not matter this time so we can be focused on the GDP and the job market. The GDP annualized is expected to come out at 0.9%. I would be looking to trade a deviation of 0.4.

BUY
If it comes out at 1.3% or higher, buy USD/JPY and look for 40 pips move.

SELL
If it comes out at 0.5% or lower, sell USD/JPY and look for 40 pips move as well.

LOOK OUT
However, a lot of people don't trust the GDP number saying that the U.S. government is "manufacturing" the numbers to eliminate the panic on the market. We will have U.S. Initial Jobless Claims coming out at the same time. This can provide some confusion on the price action. Lately, we did not see huge deviations on this report.

What I would do is use the Initial Jobless Claims report as a back up data so if the GDP comes out pretty close to expectations but the Initial Jobless Claims deviates in the same way, then enter a trade as well.
If it comes out at 390 K or higher, it should be bad for the U.S. dollar and you should see some selling pressure. If it comes out at 350 K or lower, you should see some positive pressure on the USD/JPY.

NOTE
However, people will care more about the GDP than the Initial Jobless Claims.

BLOOMBERG

Yen Falls to 1-Month Low as U.S. Stocks Gain, Spur Carry Trade

May 27 (Bloomberg) -- The yen fell to a one-month low against the euro and dropped versus the dollar as an advance in U.S. stocks encouraged investors to add to holdings of higher- yielding assets funded in the Japanese currency.

The yen declined against the Australian and the New Zealand dollars, two favorites of so-called carry trades. The Australian dollar traded close to a 25-year high versus its U.S. counterpart, while the kiwi dollar gained a sixth straight day. The U.S. dollar extended gains versus the yen and euro as new- home sales in the U.S. unexpectedly rose in April.

``We are seeing improvement in risk appetite, and that's weakening the yen,'' said Samarjit Shankar, director of global strategy for the foreign exchange group in Boston at Bank of New York Mellon. The firm is the world's largest custodian bank, with more than $20 trillion in assets under administration.

The yen touched 163.89 per euro, the weakest since April 28, before trading at 163.82 at 10:07 a.m. in New York, from 163.10 yesterday. It declined to 104.29 per dollar, from 103.43. The euro fell to $1.5708, from $1.5770 yesterday, after rising to $1.5818, the highest level since April 24.

The Standard & Poor's 500 Index rose 0.6 percent.

In the carry trade, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the difference between the two. The risk is currency moves erase those profits.

Japan's benchmark rate of 0.5 percent compares with a central bank rate of 4 percent in Europe, 2 percent in the U.S., 7.25 percent in Australia and 8.25 percent in New Zealand.

Euro's Reversal

The euro reversed gains versus the dollar after reports showed German consumer confidence fell more than economists forecast and French business confidence declined to the weakest in more than two years in May.

GfK AG's index for June declined to 4.9, from 5.6 in May, the Nuremberg-based market-research company said today. Economists in a Bloomberg survey predicted the gauge would fall to 5.7, from an initial May estimate of 5.9. An index of sentiment among 4,000 French manufacturers slid to 102, the lowest since December 2005, from 106 in April, the country's statistics office said.

``We see weakness developing in many aspects and that's why we are seeing a retreat'' from the euro, said Hans-Guenter Redeker, global head of currency strategy in London at BNP Paribas SA, France's biggest bank.

Consumer Prices Rise

Consumer prices in the euro region rose 3.5 percent in May, faster than the 3.3 percent gain the previous month, according to a Bloomberg News survey. The statistics office will release the figure on May 30.

The dollar extended gains as new-home sales in the U.S. rose 3.3 percent to an annual pace of 526,000 from a 509,000 rate the prior month that was the lowest in 17 years, Commerce Department data showed. A separate report today showed home prices dropped last quarter by the most in at least 20 years.

Confidence among U.S. consumers fell to the lowest level in more than 15 years. The Conference Board's confidence index declined more than forecast to 57.2, the lowest level since October 1992, from a revised 62.8 in April, the New York-based research group said.