*Last Updated March 7, 2006, 12:38 am

Daily report by CMC Markets

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FOREX ANALYSIS

Limited economic data sends dollar higher but prospect of BoJ caps gains against Yen

March 7th - There’s been little news around to provide currencies with any solid direction through the overnight session so traders have once again been forced to look at the longer term picture. Speculation that the BoJ’s monetary policy meeting which starts tomorrow will result in a tightening of monetary policy by Tokyo at long last does seem to be limiting downside exposure for the Yen but elsewhere the dollar is dominating. Balance of trade data and the non-farm payrolls are both due for release ahead of the weekend and although the employment number is expected to be somewhat robust, any sharp increase in the trade deficit could initiate another quick wave of dollar selling. US consumer credit data due for release today may also be able to provide some direction in the shorter term as yet again this provides another barometer of inflation. With the Fed having stated that monetary policy will now be dictated by the numbers – rather than the previously “measured” approach – markets are going to remain of the mindset that even the slightest suggestion as to where rates will go next will continue to keep the dollar in a volatile mood, but an overly hawkish approach to interest rate policy by any of the majors – ECB, BoJ or FOMC - through 2006 could leave economies struggling to continue expansion later in the year.

Wayne Roworth and Enis Mehmet



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