EUR/USD Fundamental Outlook at 1500 GMT (EST + 0500) EUR/USD - Euro Dollar, American Session - 13/10/08 Euro and Pound Set to Gain This Week? More EUR/USD GBP/USD Fundamental Outlook at 1500 GMT (EST + 0500) GBP/USD - British Pound Dollar, American Session - 13/10/08 Euro and Pound Set to Gain This Week? More GBP/USD Chart of the Day - 10/13/2008 - USD/CHF USD/CHF - Dollar Swiss Franc, American Session - 13/10/08 USD/CHF - Dollar Swiss Franc, European Session - 13/10/08 More USD/CHF

The EUR/USD remained firm all session as Euro Zone CPI was reported higher than expected. This news solidifies the European Central Bank's need to raise interest rates in July.

Adding to the strength in the Euro was a report on New York State manufacturing, which showed a contraction in June. Oil prices surged to close to the $140.00 level. This showed traders that this inflationary situation is still out of control despite Saudi Arabia's announcement to increase daily production by 200,000 barrels per day.

The G-8 nations concluded their meeting over the weekend without issuing a statement supporting a strong Dollar. Given all of the recent talk from the Fed and the U.S. Treasury, traders were all but certain the G-8 would mention the need for a stronger Dollar in its concluding statement. Instead, the G-8 stated that, "the world economy continues to face uncertainty, and downside risks persist." Then they added, "Elevated commodity prices, especially of oil and food, pose a serious challenge.""

While the news from the G-8 was disappointing, it was not a complete disaster as traders still feel that the Fed will support the Dollar by stepping up its assault on inflation by hiking rates. The statement does seem to contradict Fed Chairman Bernanke's announcement last week that economic risks have faded. This contradiction most likely added to some of the bearishness in the Dollar.

Throughout the week, financial traders who bet on the direction of interest rates by committing to spread positions started factoring in the possibility of a rate hike on August 5. The sentiment rose last week from 0% on June 6 to close to 60% on June 13. Traders also increased their bets that the Fed will raise rates in December from 67% to 96%.

Chart watchers are keeping an eye on the March 11 low at 1.5282. If this price is violated, the Euro could accelerate to the downside. Based on the short-term formation, however, the Euro seems poised to rally to 1.5573 1.5637 before encountering resistance.

The release of the German ZEW Economic Sentiment early Tuesday morning is likely to set the tone for the day. Traders are looking for confidence to fall to -42.4 from -41.4.

USD/JPY Traders Lighten Up Long Positions

The USD/JPY started out slightly better, but could not gain upside momentum to drive it higher. In a mostly technically based trade, the Dollar closed lower versus the Yen. Rather than wait for news to happen, traders decided to lighten up their long positions at the current level.

Last week the interest rate differential widened as U.S. rates rose sharply higher. Softening interest rates and a mixed stock market on Monday gave long traders an excuse to liquidate long positions. Over the long run, however, the uptrend should continue as the widening interest rate spread will make U.S. denominated assets more attractive.