By DailyFX - US Dollar. The recovery that we saw yesterday in the US dollar lasted for no longer than 24 hours before the market...

... started to pound the dollar once again.


The greenback sold off against all of the major currency pairs
on little news. The only piece of economic data released today was
pending home sales and vehicle sales, neither of which is very market
moving. Pending home sales fell 1.2 percent which comes in contrast to
the stronger existing and new home sales reported last month. Meanwhile
there was more murmuring about Bernanke's recent comments. It seems
that we are dealing with clarification over clarification as the market
tries to get its hands around the first major comments from the new
Federal Reserve Chairman. According to reports, Bernanke's comments
may not have been official comments. Instead, Maria Bartiromo of CNBC
said that these were comments made to her by the Fed Chairman at a White
House Correspondent Dinner over the weekend. She added that when asked
if the markets misunderstood him last week when he signaled that the Fed
could pause their rate hikes, he said that he found it worrisome that
anyone would consider him dovish. At this point, it all seems like
hearsay, which makes tomorrow's speech by Bernanke an important event
to tune into. The one thing that we do know is that even if the
Bernanke was not extremely dovish, the Fed is still near the end of
their tightening cycle while the pressures on the US dollar continue to
grow. With Iran defying the UN and threatening to hurt Israel if the
US attacks them, oil prices are on the rise again. The President of
Iran has already said that Russia and China, both of whom hold veto
powers at the UN have vowed that they would not back any punitive
measures on Iran. Tensions are escalating with no clear resolution in
sight and unfortunately the greater risk is for further escalation over
a peaceful resolution.

Euro
After giving back some of its gains yesterday, the Euro continued its
climb higher. However the Euro's inability to break above
yesterday's high suggests exhaustion. As expected, Eurozone
economic data is beginning to show signs of weakness and is losing some
of its impressive momentum. The region's manufacturing sector PMI
increased from 56.1 to a less than expected 56.7 in the month of April.
This is the highest reading since Sept 2000 but slightly weaker than
expected. Improvements were seen in French and Italian manufacturing
activity but growth remained stagnant in Germany. The country is
generally most sensitive to changing global dynamics and was one of the
first to see accelerated economic activity. By the same token, they may
also be one of the first countries in the region to see slower growth.
Yet it is still too early for the Euro to respond, especially since the
numbers were still strong and the weaker than expected performance in
Germany is far from worrisome levels. With little expected out of
Europe tomorrow, the market will continue to hold its breath ahead of
Thursday's much awaited ECB meeting. The market is divided on whether
ECB President Trichet will be dovish or hawkish during the press
conference. Some, like us argue that the strength of the Euro should
have the central bank very concerned while others cite growing inflation
pressure and positive economic data as reasons for more hawkish
commentary. Unless the central bank President doesn't say a word,
such divided sentiment only tells us that volatility should pick up on
Thursday as both camps react to Trichet's stance. Meanwhile Italian
Prime Minister Berlusconi conceded defeat to Romano Prodi. This should
put an end to any lingering uncertainty following the close vote back in
early April. After driving economic growth to near zero and the budget
to very high levels, the market is looking at his resignation as a
positive move for Italy.

British Pound
The British pound continued to outperform the US dollar and the Euro.
For a generally range bound currency pair, the sharp slide that we have
seen over the past four trading sessions is reminiscent of the deep
slides that we typically see more often in a trending currency pair like
USD/JPY. Economic data released this morning gave sterling bulls a good
reason to send the currency higher. Manufacturing activity jumped from
51.0 to 54.1, which compares to the market's expectations for a modest
rise to 51.3. Recent data suggests that economic activity is beginning
to pick up. The CBI April retail sales figure dipped into positive
territory as it rose from negative 16 in March to positive 2 in April.
Mortgage applications are also picking up rising from 57.6k in February
to 85.7k in March. Finally, stronger money supply growth is confirming
the global notion that inflation pressures are growing. Overall,
repeatedly good news throughout the day has kept the British pound very
well bid and could also prompt the Bank of England to be a bit more
bullish in their Quarterly Inflation report.

Japanese Yen
With the Japanese markets closed for Constitution Day, the first
holiday of Golden Week, trading in the Japanese Yen is thinner than
usual. For the most part, the majors are recuperating the losses that
it saw yesterday against the Japanese Yen. Buying by exporters ahead of
the holiday had sent the yen higher across the board. The only currency
to extend its losses against the yen was once again the US dollar. Not
counting two instances of unchanged price action, USD/JPY has remained
under pressure for eight consecutive days. Meanwhile there was no data
released last night and there will none released for the remainder of
the week. The move in USD/JPY has gotten fairly extended like the moves
in many of the other major currencies. However with no major catalyst
in sight, it may still be too early to call a bottom.


Kindest Regards,

Kathy Lien
Chief Strategist
Forex Capital Markets LLC
32 Old Slip, 10th Floor
New York, NY 10004
Tel (212) 897-7660
Fax (212) 897-7669
E-mail: klien@fxcm.com
By DailyFX

-------------------
**Save the Date: June 3-4 FXCM Currency Trading Expo Over 40 Free
Workshops, 22 Currency Trading Superstars www.fxcmexpo.com
-------------------

FXCM, L.L.C.® assumes no responsibility for errors, inaccuracies or
omissions in these materials. FXCM, L.L.C.® does not warrant the
accuracy or completeness of the information, text, graphics, links or
other items contained within these materials. FXCM, L.L.C.® shall not be
liable for any special, indirect, incidental, or consequential damages,
including without limitation losses, lost revenues, or lost profits that
may result from these materials. Opinions and estimates constitute our
judgment and are subject to change without notice. Past performance is
not indicative of future results