The ECB hiked its benchmark interest rate to 4.25% as expected in an effort to stem accelerating inflation. ECB President Trichet, however, turned dovish about future interest rate hikes by stating that the ECB had "no bias" or "precommitment" to future interest rate hikes. This comment caused massive liquidation selling in the Euro as traders were forced to lighten up positions they had been building for more bullish news.

Although the U.S. jobs data came out weaker than expected, traders instead decided to focus on the position of the Dollar. Today's poor employment report probably means the Fed will leave interest rates alone at their next meeting in August. With the ECB confident that rates will stay at 4.25 over the near-term, and the Fed making no effort to boost rates given the weak U.S. economy, look for the EUR/USD to remain in the 1.53 to 1.60 range over the near-term with choppy two-side trading on both sides of 1.55.

Traders will be looking for signs that the U.S. economy is bottoming before they commit heavily to the short side of the EUR/USD. Bullish traders will be looking for inflationary signs out of the Euro Zone especially since Trichet said earlier this week that inflation might get "explosive."

The USD/JPY retraced half of its loss from the recent top as traders gained more confidence in the U.S. stock market and covered shorts. Grossly oversold conditions in the stock market and the possibility of a short-covering rally due to the start of the summer slow trading period may lead to higher markets next week.

The GBP/USD continued to break on the bad housing news from earlier in the week. Despite comments from the Bank of England regarding the threat of inflation, the actual problem in the U.K. economy is the depressing housing market. Although inflation may be threatening the economy, the Bank of England, like the Fed, is in no position to raise interest rates until the housing market turns. The BOE seems to be confident that the inflation issue will just burn itself out. The key to sustaining a long-term rally in the British Pound will be the stabilization of the housing sector.

The USD/CHF rallied sharply higher as traders decided to take on a little more risk in their portfolios by selling Swiss Francs to buy U.S. stocks. Although the trend is still down in the stock market, the grossly oversold conditions have created an opportunity for value investors to play the long side. The trading action on Thursday turned the main trend to up for the first time in a week. Based on the current chart pattern, look for this first rally to meet resistance at 1.0335. Not until this pair can clear out the 1.06 area should anyone feel confident buying USD/CHF for a long-term move. This currently developing rally is based on the stock market holding Thursday's lows. New lows in the U.S. stock markets next week will weaken the USD/CHF once again.

The USD/CAD rallied on Thursday despite the strength in the crude oil. Other commodities also showed signs of weakness. The action today could be sending a signal that commodity prices have topped. If this is the case, then look for the start of another leg up.

The AUD/USD could not follow through to the upside after Wednesday's strong close. This is probably because traders see no real value at current levels. In addition, the Reserve Bank of Australia has hinted that the economy is slowing, meaning that there may be no reason to raise interest rates between now and December. Australian financial traders have been betting on an interest rate hike. Recent comments from the RBA regarding the future growth of the economy is slowing down the upside momentum. Without any clear indication as to the future direction of interest rates, look for sideways to lower trading.

The NZD/USD is trading in a tight range, but leaning to the downside as the forecast earlier this week about a weakening economy is turning traders bearish once again. On July 2, the Bank of New Zealand Governor Alan Bollard implied that the economy was slowing. This really came as no surprise to the market as it is already known that the New Zealand economy is in a contraction phase. Traders seeking a higher yield are supporting this market despite the bearish fundamentals. If yields drop, then the NZD/USD may break as long traders take profits on recent gains.

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