*Last Updated May 18, 2006, 3:17 am

Daily report by CMC Markets

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FOREX ANALYSIS

US economic data to direct dollar next; BoJ policy decision awaited

May 18th - Yesterday’s minor overshoot on US inflation sent a wave of panic through the market as dealers reassessed their outlook for monetary policy at the Fed but with another raft of economic data due during today’s session, gains could yet again prove to be somewhat short lived. There’s a lot of uncertainty out there right now and in some respects there’s concern that the dollar is simply looking to be oversold at these levels but any notable jump in weekly jobless claims would certainly emphasise the fragile state of the US economy right now and could be enough to kick-start a reversion. The US leading indicators will also be under scrutiny and again stand to provide some direction later in the session although after this the US economic calendar does look rather barren over the next few working days and direction could prove difficult to find before we get into the usual month-end data. Tomorrow’s Bank of Japan verdict on interest rates will be closely watched – USD/JPY has been battling with the psychological 110 mark in recent days and although we saw a sustained break through this line, Yen gains have been eroded in the longer term. As always, any suggestion that we’re going to see better returns out of Japan – even if it is just on the overnight rate – may prove sufficient to start edging the Yen higher in due course.

Tim Wilbraham and Enis Mehmet



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