All yen related pairs took a dive, with USD/JPY printing a 2 year low at 107.20. The renewed fears of further slowing caused by the sub prime crisis, gave reasons to the investors to further sell the American currency and reverse the dollar gains.

However, the rally in EUR/USD wasn’t enough to take 1.4885 as the pair found a double top and retraced during the Asian session. The same thing happened to all carry trades and we saw USD/JPY back up at 108.50.

The economic calendar was empty yesterday and traders were wary of any new positions ahead of important economic releases later on in the week. Let’s not forget that from now on until the next FOMC meeting, market players will monitor all data closely in order to make up their minds as to what the next move by the FED will be.

It is clear that the fear and uncertainty is still alive in the markets and traders think twice before they take a long term position. The sentiment is still dollar negative, however we saw that euro bulls are in a wait and see mode before they decide to bid the currency into new record highs. European officials yesterday, made some comments about the recent strength of the euro and how it is not helping the economic growth, but unless there is a clear and joint voice from everyone that the euro should stop appreciating, traders will not be stopped until their main target: 1.50.

Today, we had the German IFO data, which was surprisingly better than expected and that gave a slight boost in the EUR/USD pair from 1.4815 to 1.4850. However, the move was short lived and traders are waiting for more reasons to buy the European currency at those levels.

1.50 is so close for the pair and with most analysts and banks suggesting that we will see that in the course of the next few days, it makes us wonder how higher the euro can go after that? Let’s remember what we re saying when the pair was at the 1.25 levels. Back then 1.35 to 1.40 was like a forbidden level! Most analysts believed that European officials won’t let the pair see those levels and they would intervene. However, euro did see those levels and now is threatening to climb even higher and there is still not a pip from the so called worried European officials… What is going on? Can European businesses cope with such a high euro? Well, apparently they can. All you have to do is look at the latest economic exports numbers and you will see that not only they didn’t dampen, but printed a steady and slightly higher number!,p>

It will be interesting to see what the rest of the week will bring us, what with Durable orders from the US taking the stage tomorrow and also the Housing Data. Markets are so used to negative US numbers and therefore their reaction is mute after yet another bad performance form the American economy. The main thing is that dollar although weak and in bad shape, will get the chance to shine, if not next month then for sure in January as history shows that the beginning of the year starts with dollar strength!

EUR/USD hovers at 1.4825-1.4885 and only a clear break of 1.4885 will put pressure on the dollar bulls for another try of 1.4965. The good support levels for the greenback are 1.4775 as there are always willing buyers at those levels. Only a break will put 1.47 back in view but for now we anticipate 1.48-1.49 until the next important data comes along…