Effect: USD/JPY eye on 116.00, the yen will keep falling against all majors next week as well as China’s yuan goes down against dollar. Yuan is considered to be a proxy currency for Yen due to the huge trade exchange Japan and China has between them.

Before end of this week, USD/JPY hits 116 mark no problem what-so-ever! Well, I’m just showing off but it always feels good to be right when you get to make 100+ pips with fundamental analysis with the aid of technical indicators.

Who missed it? :)

The yen declined against the dollar, euro and British pound after the Chinese central bank ordered banks to set aside more money. Japan’s currency has declined this week as the Bank of Japan left its benchmark interest rate near zero percent, while Federal Reserve officials hinted at further rate increases.

Effect: USD/JPY eye on 116.00, the yen will keep falling against all majors next week as well as China’s yuan goes down against dollar. Yuan is considered to be a proxy currency for Yen due to the huge trade exchange Japan and China has between them.

The University of Michigan’s preliminary index of consumer sentiment increased to 82.4 this month from a final reading in May of 79.1. The measure has averaged 88.1 since monthly data were first compiled in 1978.The rebound in confidence may help stem a slowdown in consumer spending that’s forecast to pare economic growth this quarter. The survey also showed that Americans expect inflation will be less of a problem than they previously thought, which may help alleviate pressure on Federal Reserve policy makers to raise interest rates after this month’s meeting.  “It is encouraging that sentiment firmed up a bit after a plunge in May that was undoubtedly related to the spike in gasoline prices,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.

Effect: Dollar possitive means more pressure on the feds to rise interest rate but until they do, it will go down against majors beside yen. EUR/USD and AUD/USD looks north this week. As well as against Gold One of another reason for gold to rise next week would be the Iran issue.

Iran has reduced cooperation with United Nations atomic agency inspectors since the announcement of a U.S.-backed offer of incentives tied to the shutdown of nuclear-fuel production, European Union diplomats said today. “Cooperation with the agency has been reduced to almost nothing,” said Francois-Xavier Deniau, the French ambassador to the UN’s International Atomic Energy Agency in Vienna. He was delivering a statement on behalf of the EU.Effect: This is a strong sign that capital investors will move their hedge fund behind gold once again due to Iran concern after it seemed that it has cooled down.

We will be posting more interesting news and analysis as the week progress. Thank you for being with eTalkForex.com

Three detainees hanged themselves in their cells at the U.S. military prison at Guantanamo Bay, Cuba, using their clothing and bedsheets, the U.S. military said.

And

Abu Musab al-Zarqawi was alive when Iraqi and American forces arrived at the scene of a U.S. air strike that targeted him and he died shortly thereafter, a U.S. military commander said today.

Effect: psychological effect on USD should be bullish. But take a look at what Bush said

Violence in Iraq may escalate in the coming weeks following the death of Abu Musab al-Zarqawi, the al- Qaeda mastermind in Iraq, President George W. Bush said.“The terrorists and insurgents will seek to prove they can carry on without Zarqawi,” Bush said in his weekly radio address. “The work ahead will require more sacrifice and the continued patience of the American people.”Effect: Along with the suicide news, which will put pressure on US administration and Bush’s comment I’m predicting a dollar bearish unless a rate hike is near, which following news suggested.

The UK’s global trade gap widened more than expected in April, Office for National Statistics (ONS) data shows.

The trade deficit grew to £5.75bn in April from an upwardly revised £5.7bn a month earlier, although analysts had expected the gap to remain unchanged.

A £600m drop in overall exports was one of the main factors behind the fall. But despite the overall drop, exports to Europe rose 2.5% to £2.37bn.

Effect: Mild bearish effect on GBP. (note: may be GBP/JPY going south next week depending on yen status, or should we say Fukai status!)

Japan’s machinery orders rose 10.8 percent in April, the fastest in almost three years, signaling confidence among manufacturers that the economy will keep growing. Stocks gained.Non-government orders, excluding shipping and utilities, rose to 1.1 trillion yen ($9.7 billion), rebounding from a 5.2 percent drop in March, the Cabinet Office said in Tokyo today. The increase was three times the 3.5 percent median forecast of 35 economists surveyed by Bloomberg News.

Effect: Yen bullish! GBP/JPY looks south. I’ve taken a low quantity short on G/J 1 hour before market closed. Lets say how that works out in the weekends.

U.S. two-year Treasury notes had the biggest weekly decline since March as Federal Reserve Chairman Ben S. Bernanke and other central bankers reinforce the need to keep raising interest rates to combat inflation.

“It’s pretty clear the Fed is going to hike rates at the next meeting,” said Laurent Fransolet, head of European fixed income strategy at Barclays Capital in London.

“There’s a lot of uncertainty out there especially because of the message the Fed is sending,” said Colin Robertson, managing director of fixed income at Northern Trust Global Investments in Chicago.

And

Prices of goods imported into the U.S. rose more than twice as much as expected in May, led by soaring costs of crude oil and metals.

Effect: Dollar Bullish and rally if support at 1.2600 broken on EUR/USD pair.However, take a look at this before going straight long on dollar:

German industrial production rose in April for the fourth month in five as exports helped Europe’s largest economy cope with higher oil prices and interest rates.

Output climbed 1.6 percent from March, when production fell a revised 1.7 percent, the Economy and Technology Ministry in Berlin said today. Economists expected a 2 percent gain, the median of 35 estimates in a Bloomberg News survey showed.

Effect: Do not forget that ECB lifted interest rate from 2.5% to 2.75% last week to curb inflation. With strong German data coming, it will be interesting fight on EUR/USD pair while USD/CAD and USD/CHF looks to be going north next week.

Best of luck for the next week. (Post validity 12th June – 16th June 2006)