The Japanese Yen benefited from a poor performance in the U.S. stock market this week. Traders sold off high yielding assets in favor of the Yen as their need for risk abated.
A loss from AIG, which fueled the decline in stocks, is another indication of the depth of the subprime mortgage crisis. Look for continued weakness in the stock market next week to drive the USDJPY lower.
Expectations are for the Yen to appreciate over the short-term as the charts indicate the USDJPY has room to the downside. The first minor downside target is 102.87, followed by 100.72. Up trending Gann angle support also is showing support at 100.61. Look to sell a rally back to 104.21 in anticipation for a new leg down.
Strengthening Canadian Economy and Stronger Commodities Bearish for USDCAD
The strong surge in crude oil helped the Canadian Dollar gain about 1.4 percent this week. The Canadian Dollar received an additional boost on Friday when a government report showed that employers added more jobs than expected in April.
This is the worst of combinations for USDCAD bulls. For several months, the pair has been trading inside of a tight range. The bearish combination of higher crude oil and an improving economy may trigger a breakout to the downside.
Bank of England Likely to Resume Rate Cuts
The GBPUSD suffered its third consecutive weekly loss as speculators sold heavily in anticipation of another series of interest rate cuts by the Bank of England.
Recent talk by the BoE has been hawkish regarding interest rates, leading to a decision to leave rates unchanged at its last meeting on May 8. The weakness in AIG is likely to affect the U.K. as traders bet that the subprime turmoil will continue to affect the banking industry.
EURUSD May Trade in a Range
News that the European Central Bank will keep interest rates at 4% helped the Euro make a short-term bottom this week.
Despite a couple of economic reports indicating weakness in the Euro Zone, ECB President Jean-Claude Trichet remains firm on his mandate to knock inflation down to an acceptable 2% level.
Earlier in the week, Trichet stated that he expects inflation in Europe to stay high. Before Trichet spoke, however, a non-voting Fed governor warned that the Fed would not be averse to raising rates if inflation begins to get out of control.
With both the ECB and Fed recognizing inflation as a threat to their economies, the EURUSD may stay locked in a range between 1.60 and 1.52 until either one of the central banks makes the next move regarding interest rates.
With this in mind, look for the next selling opportunity in the EURUSD after a retracement back to 1.5620.
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