Forex Yard Daily Analysis – USD – Yesterday the dollar leaped to one-month highs against the EUR and two-and- half month peaks versus the JPY…. …

The greenback strengthened amid news that the European
Central Bank decided to keep interest rates at 3.75% after its monthly policy
meeting. Comments by U.S. Treasury Secretary Henry Paulson that a strong dollar was
in the interest of the United States also helped the greenback's rally gather
momentum. The important news that came out of the US yesterday was the trade
balance which came in at a negative 69.3 billion, much lower than the forecasted
figure of 60.0 billion. This news of a wider than expected trade deficit caused the
dollar to edge lower as it raised worries over downward revisions to economic
growth but it recovered after ECB President Trichet's remarks. Also the Department
of Labor released its report on initial jobless claims indicating a drop to 297,000
from the previous week's revised figure of 306,000. The market expected jobless
claims to rise to 315,000 from the originally reported 305,000 for the previous
week.

The general market sentiment about the dollar has been negative for many weeks as
concerns over the US economy and expectations for higher interest rates in Europe
and the UK have pushed bearish positions to stretched levels. Investors were
expecting an aggressive attitude by the Bank of England and more hawkish comments by
the ECB President Trichet but since that did not materialize and the three central
bank meetings offered few surprises, this has left traders with little incentive to
further sell the dollar.

The most important economic news coming out of the US today will be core retail
sales, which is expected to come in at 0.5% from a previous months figure of 0.8%.
US retail sales suffered the biggest sales decline on record last month as shoppers
were deterred due the cold weather conditions. Also the Producer Price Index (PPI),
which measures the rate of inflation experienced by manufacturers when purchasing
goods and services, will be released and it is expected to come in at 0.6% which is
lower than last months figure of 1%. Traders should beware of weaker than expected
figures as this may halt the fragile dollar rally.

Today, if the economic news from the US comes in-line with market expectations
without major surprises we should see the dollar resurrection continue as traders
will resume paring there over-bearish positions on the greenback and the behavior of
yesterday's market reiterates our opinion that the dollar reversal has begun, albeit
temporarily, and we should see the dollar head towards the 1.3450 level.

* EUR
Yesterday at the meeting in Dublin, the European Central Bank announced that for the
current period it would keep the leading interest rates on hold at 3.75%. At the
press conference that immediately followed, ECB chief Trichet sent strong signals of
a rise next month, saying that “strong vigilance” was required with regard to
inflationary risks in the Eurozone economy. “Strong vigilance is of the essence in
order to ensure that risks to price stability over the medium term do not
materialize,” Trichet said. The term “strong vigilance” is seen by the financial
markets as Trichet's codeword for signaling an imminent rise in rates. At each
meeting prior to a rate increase, the ECB chief has always said that the Euro-zone
bank would remain “vigilant” or “strongly vigilant” with regard to potential
inflationary risks. By analyzing the Presidents speech we see that it did not
contain many surprises and was pretty much as most economists expected. He was asked
few times about the next monetary policies regarding the EUR, but he was not
particularly forth coming to respond to those questions and refused to be drawn on
the outlook for interest rates beyond June. Nevertheless he did describe the ECB's
monetary policy as accommodative and the current level of rates as moderate.
According to Trichet the growth in the Eurozone will continue to expand and will
remain solid along with some conditions for the ongoing economic expansion in order
to proceed sustained rates.

As it seems at the moment, the ECB at the June conference will have allot more to
discuss about the future moves, but at the same time the central bank signaled that
it would not be moving rates in either direction for the months to come

With the Euro-zone devoid of any significant news releases, much depends on how
traders will react to today's release of US retail sales and PPI. If these figures
are not weaker than expected we may finally see the EUR lose its stronghold on
bullish momentum for a sustained period.

The GBP also fell against the dollar to $1.9828, down 0.6% on the day. The Bank of
England raised rates to 5.5 percent, also as forecast, but the accompanying
statement neither promised nor ruled out further action going forward. This was seen
as a disappointment by traders thus resulting in a downhill slide for the GBP. The
rate hike would have had to be in excess of 0.5% to have any positive impact on the
pound as the 0.25% increase was already priced in.

* JPY
Yesterday the Ministry of Finance of Japan announced that Japan's foreign exchange
reserves have reached a new all time high of $915.62 bln, when the last record, in
March, stood at $908.96 bln. The reserves include different types of elements such
as IMF special drawing rights, foreign currencies, gold, and international fund
reserves.
Japan's foreign exchange reserves are being considered one of the largest in the
world. The reasons for this are increases in dollar holding as a result of a rise in
coupon income from the United States, and this is due to the last period of the
bullish movement of the EUR against the USD, which has depreciated the dollar value.
At the moment, after yesterday's ECB meeting in Dublin regarding the interest rates,
the Bank of Japan believes that a fall in the EUR and the Sterling against the USD
will encourage investors to sell more of those currencies against the JPY.

Technical News
* EUR/USD
EUR USD is in a downtrend directed by 15min exponential moving averages (EMA). The
pair is consolidating after the last bearish movement. The volatility is low.
Bollinger bands are flat, and there is a bearish pressure on EUR USD. The downtrend
should resume. The target is expected at 1.3350.

* GBP/USD
Despite expectations to the contrary, the reversal is here. MACD provided a reversal
signal near 1.9890, which was also the short term support level of interest – and
hasn't looked back since. Although somewhat quiet now, it looks as though the target
is expected to remain 1.9710.

* USD/JPY
USD CHF is in an uptrend pressure on the basis 1H exponential moving averages. The
price is bellow 1.2250 resistance. The volatility is low, and for today the
configuration is in a bullish . The uptrend will continue to gather momentum

* USD/CHF
USD CHF is in an uptrend pressure on the basis 1H exponential moving averages. The
price is bellow 1.2250 resistance. The volatility is low, and for today the
configuration is in a bullish . The uptrend will continue to gather momentum

The Wild Card
* EUR/CHF
EUR CHF is in a bearish configuration. The volatility is quite high. Bollinger bands
are parallel. The downtrend should continue to gather momentum.
Forex trader should realize that the price should find a support above 1.6460. In
case the resistance will be broken then the target will become 1.6400

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