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May 22, 4:00 PM: EUR/$..0.9255 $/JPY..124.13 GBP/$..1.4584 $/CHF..1.5695

The dollar is off from its 8 month lows vs. the euro, 5 month lows vs. the yen and 28 month lows vs. the Swiss franc but remains under downward pressure, as the markets still jittery about possible attacks on the US soil and concerns over the US economic recovery. A new suicide bomb explosion in Israel and a suspicious pack at Brooklyn Bridge which forced the official to close this historic New York landmark for the morning, kept the dollar under a weak sentiment. The dollar was further hurt after a Senate panel voted 9-8 today to issue Congress's first subpoenas to the Bush's White House asking information on staff contacts with Enron Corp. Some Republican senators blamed committee Chairman Sen. Lieberman of being politically motivated. Enron Corp. was one of the biggest contributors to Bush's Presidential campaign.

USD/JPY is trading around 125.20 after the Bank of Japan decided to intervene in the markets at the time when the yen hit a fresh 5-month highs vs. the dollar and 2 month highs vs. the euro. The intervention occurred when the yen reached 123.66 per dollar, sending the dollar as high as 125.05 yen. It remains to be seen whether Japanese officials are drawing the line around the key support level which stands at 123 yen- 61.8% retracement of the rise from the 115.75 low (Sep 2001) to the 135.15 high (Feb 02) and are going to defend it. In the past two weeks the yen has appreciated more than 4 yen vs. the dollar and rhetorical intervention from Japanese officials seemed to have a little impact on the currencies, especially when statements alluding to the possibility that the worst may be over in Japan accompanied it. Japan's PM Koizumi said that a continued rise in the yen was not desirable for Japan and warned the government would deal appropriately with the moves in the forex. Today's intervention looks like the first of several to come. It was conducted solely by the Bank of Japan. As the euro continues to slide vs. the yen, Japan's Central Bank could get a hand from the ECB. In the past, joint interventions proved more effective on the currency markets, due to their concentrative power and psychological effect.

Analysts believe that intervention is not going to be successful as long as US economic rebound is in doubt. At the same time Japan's economy is showing some sings of improvement. If the major think tanks estimate proves correct, January-March quarter GDP expanded at annualized rate of 9%, a first increase in four quarters. The Nikkei has responding positively mounting a 10% increase over the past 5 weeks, and is negligibly away from its 9-month highs, and the government upgraded its economic outlook for a third consecutive month. Nonetheless, the latest data from CFTC showed that speculators cut their long yen future positions to relatively small 2,814 contracts. Resistance is seen at 125.35, 125.70 and 126.00. Support at 124.00 and 123.50

Gold was victorious today, trading at its highest level since October 1999 around $317 an ounce, due to tensions on India-Pakistani border, unsettle situation in the Middle East and more warnings about possible terrorist attacks in the US. Investors are trying to find alternative ways of investing and gold has been considered as a safe heaven.

The Dow Jones closed up 49 pts at 10,155 and Nasdaq up 8.5 pts at 1,673. The US stocks were in negative territory for the most of the day but at the end of the trading reversed into positive territory.

EUR/USD hovers around 92.60 after reaching a day's high of 92.80 as the markets focused more on terrorist threats and international politics due to lack of economic data in the US. The ECB chief economist Issing said that he believed the euro zone inflation to fall further. Nevertheless, Issing expressed disappointment that the euro zone inflation rate in April was not as good as the ECB hoped for. Issing also added that he felt sad that successful euro cash lauch was darkened by impression of price hikes. EU Commission President Prodi raised the question of a direct tax throughout 15 eurozone members in order to fund EU spending. Currently, EU's 95 bln euro budget is funded primarily by share of the value added tax collected from member states and customs receipts. The control over the EU budget is exercised jointly by the EU Parliament and Council of Ministers. The proposal draws a further debate over extended EU powers over fiscal policy and is likely to prompt resistance from some member states. Prodi would like to see EU strengthening its own powers in foreign policy and home affairs. Support at 92.20 and 91.80. Resistance at 93 and 93.50

Cable rose to $1.4630 breaking a key resistance level but trading still below its highs around 1.47 reached earlier this month EUR/GPB hit 1.6340 a fresh eight months high, driven by the EUR/USD rally. Resistance at 63.60, the highest since March 2001 and 1.64. Support at 63.20 and 62.80. Today's release of the Bank of England policy minutes of this month's interest rate meeting showed a unanimous decision to keep policy unchanged. The Committee also voted unanimously to leave rates unchanged at 4% at its last meeting of April 2-4. Traders were concerned that there might have been hawkish rhetoric and disagreement over rates after last week's Quarterly Inflation Report showed rising chances that the government's 2.5% inflation target will be breached in the 2-year period, stating pressures to be mostly on the upside. The new members of BOE MPC Bell and Tucker who are replacing the current members Plenderleith and Wadhwani on June 1, said that interest rates policy could prove ineffective to ease disproportion in the British economy. Both new members noted that serious imbalances such as high level of household debt could risk an unexpected adjustment in the future. The BoE Deputy Governor King said the BoE MPC could claim a record of "reasonable competence" during first five years of work. The MPC was formed five years ago by Chancellor of the Exchequer Brown when the Labor party took over from Conservatives. 9-members body has since then kept the inflation close to government target of 2.5%. There was a recent criticism about the MPC decision to keep interest rates unchanged as the latest inflation report showed a rise above the target. Cable support is seen at 1.4570, 1.4550 and 1.4530. Key resistance remains at 1.4630/35 and 1.4700.

USD/CHF is trading around 1.5690 after hitting a 28-month low of 1.5660 after slipping below the 1.5665 low set last September in the wake of terrorist attacks. The Swiss National Bank again lowered its overnight repo rate to 1.05% from 1.07% but the franc continues to attract safe haven flows despite the SNB's attempts to weaken its currency through lower interest rates. Support is seen at 1.5660, followed by 1.5600/5590 and 1.5520. Resistance is seen at 1.5740 and 1.5780/85.



By Darko Pavlovic at forex news