Forex Todays

The dollar fell Friday on the sharpest increase in the US unemployment rate in 22 years, record high oil over $139bbl added more pressure, tumbling stocks [DJIA -3.1%] and heightened risk aversion just about finished the greenback off. Europe opens to oil around $137bbl and the main European equity bourses looking at 0.5% declines, so those two are likely to be the main drivers ahead of US April pending home sales at 1400 GMT

Overnight release of BRC's bi-annual consumer confidence survey shows a record-low of 79 in May, down from 94 in November 2007. That's weighed on sterling which is trading at a near 3-week low of 0.8025 against the euro and making very little ground against a falling dollar. GBP/USD currently trades at 1.97.

Speculative net USD short positions on the Chicago Mercantile Exchange fell to 71,657 from 102,594 contracts in the week to June 3. This move was hardly surprising as it covered the period after Fed Chairman Bernanke raised inflation fears and pushed the USD higher. But, notes RBC Capital Markets, the data didn't cover the subsequent hawkishness from the ECB "that sent USD bulls scurrying to cover." The bank suggests the next futures report "should prove much more interesting as it will highlight the stunning reversal in the USD's fortunes on June 5."

More JPY losses are likely as the Japanese currency falls to its lowest level against the EUR this year. With both the Fed and the ECB putting fighting inflation back at the top of their agendas, renewed interest in carry trades is likely - leaving the JPY being sold against higher-yielding currencies.

EUR/JPY printed a fresh 08 high of 166.39 in Asia Monday and Mizuho Corporate Bank's Nicole Elliott says one driver of the rally may be US banks creating dollar deposits through Yen swaps. She says with the cross overbought and it closing in on all time highs do as little as possible, but if you must then try small shorts at market with a stop above 166.75, looking for 165.00 and 163.50 on the downside. EUR/JPY now at 166.37.

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