*Last Updated September 12, 2006, 12:05 am

Daily report by CMC Markets

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FOREX ANALYSIS

Trade deficit in focus as dollar starts to give back some gains

September 12th - The dollar may be giving back a little more of its earlier gains over some of the majors but overall the currency remains in favour as many traders continue to eye the possibility of a rate hike at next week’s FOMC meeting. However, the US trade deficit number for July which is due for release today will come into focus and another broadening of the gap here – although likely to be some way short of the recent record levels – would have the potential to put the greenback under some renewed pressure in due course. The Yen is perhaps the notable exception which finds itself sitting close to levels that haven’t been seen since April, although with a steady stream of lacklustre economic news continuing to trickle out of Japan - the latest of which was the consumer confidence data released overnight where yet another month-on-month decline was posted – it remains difficult to see when the BoJ will be able to look at tightening its monetary policy once more. As always, if yields continue to look uninspiring in the medium term then it’s going to be sentiment rather than fundamentals that will provide any support. Right now the scope for some profit taking off an oversold Yen may exist but otherwise we can probably expect USD/JPY to hold close to these levels.

David Hutchings



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