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Despite recent talk that the Fed may be ending its cycle of interest rate reductions, there are still concerns in the Forex community that the U.S. economy may not be robust enough to avoid a prolonged economic drawdown or in the worst case, a recession.

A series of U.S. economic reports on Thursday coupled with reports from earlier in the week suggest that there is still weakness in several sectors of the economy despite the Fed's efforts to stimulate the economy.

In Thursday's reports, industrial production indicated some weakness. Industrial capacity failed to meet expectations, and although the Philadelphia Fed number showed some improvement, it was still negative. Finally, jobless claims did not show any improvement.

Bernanke's warning to banks to continue to raise capital because of the possibility of more financial market turmoil is another indication that the financial markets are not improving as fast as the Fed would like to see.

Uncertainty in U.S. Economy Sends Traders to the Yen

The USDJPY failed to punch through the last main top at 105.71 as traders voiced their concerns about the uncertainty that the U.S. economy will avoid a prolonged economic slowdown and sold Dollars to buy Yen.

For the second day in a row, traders appear to be reluctant to buy Dollars at current levels so close to the old top at 105.71. The recent pattern indicates an interest in buying breaks rather than strength. The trend remains up unless 102.56 is violated.

Trichet Caps Euro Rise with Comment

A report showing GDP was up in Germany and France helped support the Euro early in the trading session, but a comment by ECB President Trichet capped the rally.

Trichet commented that despite the gains, the GDP growth pace may not be as strong in the months ahead. Many speculators took this as a warning of impending slower growth and liquidated their long positions.

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