The Wall Street Journal in its weekend edition speculated that the Bush administration was waging a battle for international support to put a floor under the U.S. Dollar.

This was very similar to our April 17 report called "Verbal Intervention Puts Short-Term Top in Euro." Now almost a month and five handles lower in the Euro, The Journal is writing that the initial support for the Dollars bottom may have come following the April 11 Group of Seven meeting. At that time, if you recall, the G-7 made a change to its official statement for the first time since 2004.

This change in the G-7 statement was the first sign that the Euro had reached a critical level. Excess volatility was cited by central bankers as well as concerns about what the soaring Euro was doing to Euro Zone exports. About the time of the G-7 announcement, the Treasury Bonds accelerated to the downside, pushing up interest rates and narrowing the spread between Bunds and Bonds.

With this kind of support, it is becoming clear that the break in the Euro may be part of a developing long-term trend. An additional signal that the trend may be turning in the Dollar was found in the release of the April 29 Commodity Futures Trading Commission Commitment of Traders report. In this report, hedge funds and large speculators have turned net long for the first time since December 2005.

Based on this knowledge, it appears that a long-term top may be forming in the Euro. From the technical side, however, chart watchers should note that markets rarely turn quickly from long-term bullish to long-term bearish. Short-term technical traders should note that the Euro has yet to retrace its break from the top to set up a secondary lower top.

With Trichet of the ECB still hawkish on interest rates, and the FOMC expected to hold rates steady at its next meeting on June 25, the Euro may trade sideways-to-higher until then before the long-term trend takes over and the next down leg resumes.

Fundamental traders should continue to monitor reports out of the Euro Zone regarding consumer/business confidence and economic reports. Any series of weak economic reports may shift the ECB's tone regarding interest rates from hawkish to dovish.

The conclusion is to play both sides of the market until there is a sign that the bulls are ready to add to their commitment to the long-side of the Dollar. The EURUSD may stay locked in a range between 1.60 and 1.52 until either one of the central banks makes the next move regarding interest rates.

With a possible long-term down trend set in motion, look for the next selling opportunity in the EURUSD after a retracement back to at least 1.5620.

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