The EUR/USD Range Trade (page 2 of 2)

The Bank of England, which left interest rates on hold last week, will now have a more difficult time reining in inflation. With consumer prices expected to remain above the BoE's target of 3 percent, central bank Governor King will have no choice but to focus on inflation at the expense of growth. In fact, two year notes fell by the most in 10 years, indicating that bond traders expect a rate hike by the BoE over the next few months. Therefore even if tonight's RICS house price balance, BRC retail sales report and tomorrow's industrial production report fall short of expectations, the BoE may not pay much attention to these numbers because for the time being, their hands are tied.

Will the Bank of Canada Cut Interest Rates?

The Canadian, Australian and New Zealand dollars sold off significantly as the combination of dollar strength and commodity price weakness drives the currencies lower. The bull run in commodities is largely dependent on the trend of the US dollar. Even though there isn't a one to one link between the direction of oil and the dollar, dollar weakness on Friday was one of the primary reasons why oil prices surged to a new record high. Looking ahead, the Canadian dollar will be a big focus tomorrow with the Bank of Canada interest rate decision and the trade balance due for release. Each one of the 30 economists surveyed by Bloomberg expects the BoC to cut interest rates. Although oil prices are skyrocketing which should benefit some Canadian companies, consumer confidence has fallen to a 7 year low as the economy shrank by 0.3 percent in the first quarter. Australia also has a few numbers due for release tonight including home loans, ANZ job advertisements and NAB business confidence. These are tier 2 data and should only have a limited impact on the Aussie.

Japanese Yen Crosses Rebound as Stock Market Recovers

After dropping close to 400 points on Friday, the stock market rebounded, helping carry trades or the Japanese Yen crosses to recover. Economic data from Japan was slightly weaker than expected last night with the eco watchers survey dropping to 32.1 from 35.5. This represents a sharp deterioration in consumer confidence and reflects the strain that high energy prices is having on the Japanese consumer. Machine orders are the only numbers due for release from Japan tonight, but the calendar picks up on tomorrow with GDP and the current account due for release.