The EUR/USD fell on Monday as German business confidence fell in June to the lowest levels since 2005. Because of this report, traders reduced bets that the European Central Bank will aggressively hike rates this year. Following the release of this report, the interest rate differential between the Bund and the Bond tightened as financial traders adjusted positions to reflect the latest news.

Another key report showed that Europe's manufacturing and service industries unexpectedly contracted this month. This was another blow to those traders who believed a rate hike out of the ECB was a certainty.

Traders now have to believe that the ECB has to reevaluate its call for a rate hike in July.

Technically, the EUR/USD is in a range from 1.6019 to 1.5282 with a mid-point of 1.5651. The rally failed at 1.5651 on 6/20. The latest news has traders thinking that selling pressure will eventually erode the support at 1.5282.

Oversold Condition Helps USD/JPY Firm after Five Day Sell-Off

The USD/JPY rallied on Monday as traders sensed an oversold condition was developing and took profits after a five-day break. Since 6/16, the Dollar has been under pressure against the Yen as lingering news about the weakening U.S. credit markets caused traders to rethink their commitments to the U.S. Dollar. During periods of uncertainty, traders often seek the safety of the Yen.

During the trading day, a report was circulating that Japanese Business Confidence was expected to drop to its lowest level in five years. Traders were blaming higher energy and commodity costs for squeezing the profits out of corporations amid a global economic slowdown.

Talk is going around that the Bank of Japan wants to increase rates because of inflation, but fears triggering a recession.

Finally, over the weekend the Japanese government announced that it is exploring the possibility of tax incentives to entice investment in Japan. Although on paper a bullish proposition, traders largely ignored this news.

If this rally fails near 108.00, chart watchers are looking for the correction to resume with a break to at least 106.49 likely.

British Pound Dives on Bad Housing Number