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06/17/2007 - USD looks to have stalled against Europe

Posted by FOREX.com's Weekly Strategy in June 18th 2007  
* USD looks to have stalled against Europe
* JPY-crosses on fire as carry trades roar back
* Stock market gains are needed to keep JPY crosses up
* Light data week all around; US data focus is on housing

The dollar is finishing the week mostly unchanged against European currencies, but sharply stronger against the JPY, as carry-trades surged yet again and the BOJ signaled interest rates are not moving higher in the near future. The currency market was fixated on the bond markets for much of the week, after the sharp rally in global bond yields saw rates move higher globally, with US 10 year rates up over 35 bps over the last ten trading days at their peak. However, the bond yield rally had run it course by mid-week, and subsequent benign PPI and CPI reports saw yields retrace nearly 20 bps from the peak. The lower inflation readings dashed nascent speculation that the Fed's next move would be to raise rates, which in turn supported equities as they rallied strongly back to recent highs. Stock market strength in turn fueled additional JPY-selling across the board, as carry trades recovered. The strong positive correlation between JPY weakness and equity markets remains intact and Forex markets are likely to continue to be driven by stock and bonds next week as little data of consequence is out to drive currencies.  Full text »

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Filed under: Weekly Strategy