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USD

Friday's US calendar was empty of any meaningful economic release, and it is expected to remain so today as well. USD crosses price action in the last week has been dominated by external economic events such as interest rates decisions in Europe and England as well as by the G7 Finance Ministers meeting in Essen, Germany. Consequently, the USD was slightly changed over the past week, making its only significant gains against the GBP after the BoE decided not to raise its interest rates this month.

The only USD pair that is expected to draw some interest today is the USDJPY, and now that the G7 meeting is behind us with no specific comments on Japan's monetary policy, it is expected that the USD will try strengthening beyond 122.15 against the JPY.

The only data on the tap from the US today is the Monthly Treasury Budget Statement, not a real market mover. The calendar is rather thin on events overseas as well, and is not likely to generate extreme price action. This might sound a little boring for those who seek extreme volatility, but it is actually a great opportunity for a range trading. This is only a short break to allow traders to gather some strength for the week ahead, as we are gearing up tomorrow with the US Trade Balance, IBD Consumer's Confidence, two Regional Fed Surveys (Empire State and Philly) on Thursday, and probably the market mover of the week - Fed's Chairman Bernanke testimony on monetary policy before the House Panel this Wednesday.

EUR

There were no major releases from Europe last Friday, the currency's value was very much determined by the still-echoing statement of ECB governor Trichet, in his news conference that followed the interest rate decision on Thursday. The European Central Bank governor, as well as all other members of the ECB monetary policy committee, returned to their "Strong Vigilance" phrasing they had dropped from the previous interest statement. Not only that the "Strong Vigilance" has returned, it sounded as if the Governor Trichet really wanted to make sure everybody heard him say it, as he repeated these words several times in his speech, and also stated that the vote on this phrasing ("Strong Vigilance") was unanimous. For those who are not familiar with the term, we will explain: strong vigilance is the ECB's way to say "We're hiking rates the next meeting, and don't say we haven't warned you".

This has certainly helped the EUR to gain, although against the USD this strength was a little less noticeable. Nevertheless, it did bring the pair to trade back above 1.3000 level, and towards the end of the Asian session the pair traded at 1.3020.

Although we are expecting some very important economic indicators from Europe this week, none of them are expected to be released today, something that would probably allow the EURUSD to range trade above 1.30, maybe basing itself here before it tries to surge higher later this week.

JPY

It was rather amusing, actually. The way everybody waited for the G7 Finance Ministers meeting that took place in Essen, Germany this weekend, expecting some sensational decision to emerge there. The Europeans really wanted to discuss the JPY weakness in that meeting. It is bad for their exporters, cannot compete with the Japanese exporters who can sell their goods a lot cheaper. Even domestically, it is usually cheaper to buy goods imported from Japan than to buy domestically produced goods. But what did the European finance ministers really expected Japan to do? Economic indicators that have recently released in Japan are, to say the least, inconclusive. Inflation is near zero, the economy is barely recovering from a year-long recession. No matter how unpopular it might sound, the JPY is probably right to hold its interest rates near zero.

Nevertheless, JPY weakness was discussed at the meeting. But instead of criticizing the Japanese Government and the Japanese Central Bank for their economic and monetary policies, they aimed their spears elsewhere - at the hedge funds. Admittedly, the JPY's weakness over the past year or so was mainly due to speculative carry trades, trades intended to take advantage of interest rates differentials between the JPY and better yielding assets elsewhere. It is also true that hedge funds are the leading teams in the ball game called carry trades. What remains to be seen, though, is what impact, if any, will the G7 statement have on the carry trades and JPY's value? Judging by the market's reaction at the opening of the Asian session overnight, it seems that there isn't going to be any. It seems that the market players took the G7 Communiqué as a relief, actually, and started shorting the JPY once again, sending it to an all times low against the EUR at 158.98 and to retest its 4 year low vs. the USD at 122.10.

We expect that JPY weakness will continue being the theme through the day and possibly through the week ahead, although heavy resistance might be met at current levels.

Technical Analysis

EUR/USD

The 1.3050 key resistance level has held firm throughout the weekend and volatility has dropped in the beginning of this week trading session, it looks as if the support level at 1.2900 will hold firm and range trading is more likely to continue.

GBP/USD

This pair has tipped the support level 1.9470 last weekend bouncing back from the lower band of the daily Bollinger bends, with low volatility and no special market movers traders expect the range to be persistent in today's trading session with minor gains from the GBP.

USD/JPY

This pair has reached it's all time high price 120.10 in the early Asian session with a minor rebound, indicators are rather bullish with 4 hour RSI at 80 and slow Stochastic crosses over 80. It will be interesting to see if a new record high will be attained today or will it take a few more days.

USD/CHF

Resistance at 1.2510 has held firm and price has reversed back into the range, Volatility has dropped tremendously, daily RSI is at 40 and slow stochastic is at 78 showing no serious price movement at the monument with high expectations for range trading to continue.

Wild Card

EUR/JPY

This Forex pair has again broken highs by breaking 158.50 and staying bullish on the daily indicators, first support level is at 158.00 however slow stochastic is at 90 and next resistance at 159.20 is far more likely to be tested.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.3130	1.9850	123.10	1.2563	0.7909	0.6710
	1.3085	1.9740	122.50	1.2524	0.7881	0.6692
	1.3050	1.9650	122.15	1.2500	0.7780	0.6680
Support	1.2981	1.9475	121.21	1.2418	0.7721	0.6641
	1.2926	1.9400	120.80	1.2396	0.7703	0.6600
	1.2860	1.9350	120.15	1.2316	0.7685	0.6575

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
12/02/07	09:30	GBP	PPI Input m/m		0.1%	-0.8%
12/02/07	09:30	GBP	PPI Output m/m		0.2%	0.2%
12/02/07	15:30	GBP	Leading Index m/m		0.1%
12/02/07	23:50	JPY	CGPI m/m		0.0%	0.1%
12/02/07	23:50	JPY	Import Price Index m/m		0.2%