Poor economic reports kept the U.S. Dollar on the defensive all week allowing the Euro to retrace more than 50% of the previous week's rally. The financial markets in Chicago are indicating that the Fed is less likely to cut rates over the near term and the ECB expected to raise rates in July. This anticipated action has widened the interest rate spread, making the Euro more attractive.

The key area to watch is 1.5573 to 1.5637. On Friday, the Euro traded 1.5651, but backed off below the upper end of the resistance zone. This area is a battleground and controls the short-term direction of the market.

In order to create a bullish scenario, strong buying has to come in to thrust this market through the upper end of the retracement zone at 1.5637. If heavy selling surfaces, then look for another down leg to begin with momentum likely to push through 1.5282 this time.

Trading maybe tight and directionless as the Fed meets next week on June 24 and 25.

USD/JPY Feels the Pressure of Uncertain U.S. Economy

The USD/JPY suffered another loss as the market closed lower for the week. The lack of confidence in the U.S. economy has caused traders to reconsider aggressively buying this pair at current levels. Uncertainty regarding the financial sector appears to be the force driving this market lower. With Citigroup warning of more potential subprime losses and insurers receiving downgrades, traders are seeking the safety of the Yen. Traders were more risk adverse this week. Look for this to continue into next week as the charts indicate the potential for more selling.

All week this market had trouble breaking Monday's high at 108.58 and the February top at 108.61. Chart watchers are looking for this correction to finish at 106.49 to 105.99. A correction into this area is likely to attract buyers.

Retail Sales Report Continues to Drive British Pound Higher

The GBP/USD continued its strong rally set in motion by Thursday's better than expected Retail Sales Report. Although technically still in a downtrend, the strong close stopped just short of taking out the last main top at 1.9801 and turning the main trend to up.

The strong Retail Sales Report confirmed the Bank of England's decision to leave rates unchanged as to prevent a stifling of economic growth. Bond prices also fell in the U.K. as traders are placing bets that the BoE will not raise rates until next year.