<Dollar/Yen>

A push north for 5 days to 80.63 on June 25 may have left investors thinking the greenback would continue to trend up.  Not so, as it fell to 79.5's due to continues Euro debt worries. Closing of short positions began in part due to news that the ESM can now directly recapitalize banks without increasing government debt (potential centralization of financial sector regulation in the Eurozone is also on the cards).  The ensuing rally of Euro/Dollar, Sterling, Aussie and cross-yen pairs led to the rise of Dollar/Yen, finally closing at 79.99.

As the rise of Dollar/Yen this time couldn't reach 80's, selling of dollar for actual demand will be heavy at this level, especially from 80.5 to 81.  The greenback may be drag by the fall of the euro and cross-yen pairs and increasing potential of QE3.  There remains potential to sell in the 80.5-81.5 zone with a stop loss after breaking 82.00.

Expected Range: 78.75-81.85  Sell the dollar on rallies

<Euro/Dollar>

Because of Spain's debt issue and European financial problems in general, the euro fell against the greenback after failing to establish above 1.2750 and forming a triple top.  If a break below 1.2400 happens, the euro may even break through the lows at 1.2286 to 1.2000.  The market is ready for an aggressive fall since net yen shorts have increased to about 160,000 contracts on the IMM.  Though investors opened a number of selling positions, ESM direct recapitalization and potential increasing centralization of financial sector led to a boost to 1.2693 from 1.245's and closed at 1.2663.

These are mere words and comfort the markets in the near term.  If action is taken the time frame is painfully long, so even if the euro establishes above 1.2750, it is unlikely to break above 1.2825 near term.  Once investors realize that all these decision are still far from implementation, preassuer will continue to build on the downside.  The possibility of cutting interest rates from 1% by the ECB also constrains a solid push north.

Expected Range: 1.2400-1.2830 Sell the euro on rallies

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