Despite a continued bank holiday in Japan today the Yen again followed through with the winning streak it kicked off last week with Yen futures settling up 1.94 at 92.07. Many traders are tracking Yen futures because they can play Yen from the long side this way and not have to pay interest on the position as they would in the cash market. Even before today’s bearish U.S. ISM reading came in below 50 at 47.7, the Yen jumped above the London session highs and steamed higher throughout the U.S. session, taking strength from continued weak U.S. economic data. With USDJPY again trading below 110.00, at the same levels it traded when Japanese PM Fukuda cautioned against his currency appreciating too quickly, we’ll watch for signs of profit taking on behalf of traders. With momentum so clearly on the side of Yen bulls though, the door may be open for a re-test of the 107.25 lows from late November.

Chart courtesy of eSignal

The Euro also took strength from the weaker U.S. data to reverse Monday’s sell-off and end the day up 138 pips at 1.47.28, leading some analysts to bring up talk of the 1.50.00 level again. The current line in the sand for Euro is 147.50, which was Monday’s high. With traders still making money on both long and short-term buy signals in EUR, and analysts calling for a continued stronger Euro vs. the Dollar, it is going to be hard to pull the dogs off the raw meat that the greenback has become. In defense of the Dollar are European exporters leaning on their central bankers and politicians for help as the weaker Dollar just crushes their profit margins, and allows their competition a powerful tool to pry business away.

Another possible contrarian Dollar prop is the higher commodity prices it creates. If the U.S. Fed decided to put inflation fears ahead of the uncertainty created by the current and previous year’s mortgage problems, they might then adopt a more hawkish interest rate stance, which would very likely spark a hefty profit taking move in both commodities and the Dollar. The odds of the Fed putting inflation and the long-term health of the economy ahead of the short-term interests of investors? Judging from Mother Market’s performance, quite slim.

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