Will the US Dollar Continue to Rally? (page 2 of 2)

Eurozone industrial new orders plunged three times more than the market expected in the month of May as the strong euro and weak domestic demand makes life difficult for Eurozone manufacturers. Retail sales in France and Italy were also weaker than expected, which indicates that conditions there are not much better. As a result, we expect tomorrow's German IFO report to be weak as these factors continue to weigh on German business confidence. The ECB's commitment to fighting inflation will come back to haunt them as the economy continues to slow. According to ECB member Liebscher, the central bank is not worried. He said that growth will weaken but remain fairly healthy. In 2010 there should be a slight uptrend, which for many currency traders is the same as an eternity. Service and manufacturing PMI for the month of July will also be released tomorrow along with the current account figures for May.

British Pound: Retail Sales Will Determine Whether the GBP Can Hold Onto Gains

The surprisingly hawkish Bank of England minutes drove the British pound higher against all of the major currencies. The monetary policy committee voted 7-1-1 to keep interest rates unchanged last month. Although 2 dissenters were widely expected, no one believed that one of the dissenters would have favored a rate hike. Besley, broke from the mold to call for a 25bp rate hike to "to keep medium-term inflation expectations anchored and ensure the Committee's credibility." This three way split highlights how difficult monetary policy decisions have become for the Bank of England. Their problems are the same as everyone's, albeit at a greater degree; inflation is hot, while growth is not. Retail sales are due for release tomorrow and they will play a big role in determining whether the British pound can hold onto its gains. The highest level of unemployment claims since the 1990s and the weakest level of consumer confidence in 28 years suggest that retail sales will have dropped significantly in the month of June.

USD/JPY Hits 3 Week High

The US dollar hit a 3 week high against the Japanese Yen. Oil prices fell $4 today which is positive not only for the US economy, but also for the Japanese economy. Since Japan imports close to 99 percent of their oil needs, the fall in oil prices could also help to boost domestic demand. The Dow Jones Industrial Average rose by a mere 29 points today, leaving some traders cautious of a near term top in US stocks. The fate of USD/JPY at this point is almost entirely contingent upon oil and stocks.