Euro Moves on Dollar, Yen

U.S. 10-year Treasury bonds bounced today, after falling for 2 straight days. Bonds fell steadily through May on a string of turnaround, inflationary reports and hawkish Fed comments. Interest rates worldwide continue to rise, fueling concerns that inflation is outpacing growth in the U.S. Bond prices hit 11-month lows last week, but have since bounced and tried to stabilize. A GDP report next week from the U.S. should give traders more to work with, so watch for some volatility next week.

The euro pushed higher against the dollar, and also surged over the yen to new highs today, on sentiments that the carry trade can continue uninhibited. Traders borrow the yen at a low interest rate, and then invest the borrowed currency into more profitable asset, creating the so-called carry trade. With interest rates on the rise in Europe and across the globe, traders are capitalizing on yen weakness to turn an easy profit, and the yen continues to suffer. The U.S. dollar rose against the yen in early trading, but gave up gains as the day went on. The dollar also slumped against the Canadian dollar today, after bouncing yesterday.

Crude oil prices rose 0.7% today, after the Nigerian government failed to come to a resolution with the striking oil workers. Crude has been moving higher for about 2 weeks, on Nigerian strike worries. Nigeria and the Middle East present problems for oil traders, because both are unstable regions that produce a large percentage of the world's oil supply. Political disruptions and oil problems usually lead to quick spikes in oil prices. Natural gas futures fell over 3% on comfortable reserve levels.

Gold futures rose 0.4% on euro strength over the weakness. Gold usually moves inversely to the dollar and with oil; today' rising oil and a falling dollar increased gold's attractiveness on the market. Gold has been falling somewhat lately, due to high interest rates around the world. Copper futures fell 0.6% after a strike was averted in South America.

Grains fell across the board today. Soybeans fell 2.6%, wheat dropped 2.6%, and corn fell 4.6%.

John Lee
Associate Editor
johnl@tradingmarkets.com

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