HFE economist Ian Shepherdson: "ISM manufacturing index rose to 49.6 from 48.5, a bit above the consensus, 48.5. The plunge in auto production in recent months threatened to push the ISM down sharply but strength elsewhere appears to have offset it. New export orders rose to a three-year high of 59.5, up from 57.5. This is dead in line with the performance implied by the weakening of the dollar over the past year and will likely persist for a few more months yet. This helped boost overall orders, which rose to 49.7 from 46.5, and production, up to 51.2 from 49.1. But employment was little changed at a weak 45.5; export gains are not enough to offset productivity growth so manuf jobs are still being lost. Overall, soft but not catastrophic; but remember this is a deeply atypical, consumer-led downturn."

Standard & Poor's Ratings Services said today that it lowered its long-term rating on Lehman Brothers Holdings Inc. (Lehman) to 'A' from 'A+', and we affirmed our 'A-1' short-term rating. The outlook is negative. JPMorgan Chase & Co. Outlook Revised To Negative; 'AA-/A-1+' Rating Affirmed. S&P placed its 'AA-/A-1+' ounterparty credit rating on Wachovia Corp. and its counterparty credit ratings on Wachovia's rated subsidiaries on CreditWatch Negative.

Morgan Stanley shares off 3.5% recently while Lehman shares off 5%; Merrill shares off 4.2%.

--Euro rate has protected Europe from full impact of oil price spike;
--Interest rates in EMU historically low, lower than pre-euro

"Core inflation has a historical 94% correlation with headline and the historical chart shows vividly that
headline follows core, not the other way around. Second, the assertion that the Fed only watched core inflation in the 1970s as opposed to headline simply isn't the case - the Fed ignored both. For 90% of that inflation cycle, core and headline were moving in tandem - there was never the sustained gap between the two as has been the case through this entire 7-year cycle which saw headline inflation peak at 4.7% (back in Sept/05!) and core peak at 2.9%."

The pound fell and the yen advanced on speculation spreading credit market losses at banks will result in slower economic growth and discourage policy makers from raising interest rates.

Sterling dropped the most in more than three weeks versus the dollar after Bradford & Bingley Plc, the U.K.'s biggest mortgage lender to landlords, said it will sell shares at a 33 percent discount. The yen rose against all of the major currencies as a decline in European and U.S. stocks eroded demand for higher-yielding assets funded in Japan.
``Risk aversion is filtering into the market again,'' said Matthew Strauss, a senior currency strategist in Toronto at RBC Capital Markets Inc., a unit of Canada's biggest bank by assets. ``Even though the worst of the financial crisis may be behind us, the recovery won't be a smooth ride. It's clearly weighing on the pound.''
The pound weakened after Bradford & Bingley Chief Executive Officer Stephen Crawshaw quit yesterday, citing health reasons. TPG Inc., a leveraged buyout firm, is in talks to buy a 20 percent stake in the mortgage lender. It plans to raise an additional 250 million pounds ($490 million) from shareholders.
The Standard & Poor's 500 Index fell for the first time in five days, dropping 1.1 percent, after Wachovia Corp. ousted Kennedy Thompson as chief executive officer. The Dow Jones Stoxx 600 Index of European stocks decreased 1 percent.
``People are worried about banks' ability to raise the capital they need,'' said Steve Pearson, chief currency strategist at HBOS Treasury Services Plc in London. Japan's currency may rise to 203 against the pound and 103 per dollar this week, he forecast.
The U.S. currency rose earlier against the euro as crude oil fell by as much as 1.7 percent to $125.22 a barrel, easing concern high commodity prices will reduce U.S. consumer spending. Crude reached a record high of $135.09 on May 22.

"Our longstanding forecast for two more 25 bpfed funds rate cuts to 1.5% this year has become a distinctly minorityview since the Fed started signaling a preference to be on hold.However, history reminds us that the Fed and fixed-income markets can undergo rapid opinion shifts, as happened in January. Key upcoming signposts for whether the Fed eases further as soon as the June 24-25 FOMC meeting will be May statistics on labor markets, purchasing agents, and retail sales."

The pare posted fresh highs for the session near $1.5585 as supply clustered either side of the $1.5568 overnight high gets absorbed, revealing a few stops and as the dollar and stocks get beaten up in the wake of ratings action on US investment banks. Further offers spotted at $1.5600/10.

Buyers remain on the sidelines as the major indices trade with substantial losses. The Dollar Index is up a slight 0.05% after being up as much as 0.37%.
Atlanta Fed President Lockhart said inflation levels are "uncomfortable" but he does expect a "fall-off" from current levels. The stock market has a muted reaction to the comments, as the Fed has already expressed this view.

``We're bearish on the pound,'' said Kimihiko Tomita, head of foreign exchange in Tokyo at State Street Bank & Trust Co., a unit of the world's largest money manager. ``The U.K. housing market is turning out to be worse than some people expected and their financial sector is facing a difficult time.''

Crude oil prices are squeezing higher following earlier bounce in natural gas futures, amid reports that temperatures will be above normal from June 7-11, according to the National Weather Service. WTI Nymex crude oil is at $128.29, up $0.94.

The Dow and Nasdaq take out fresh session lows, while the S&P 500 is drifting toward its worst level. The energy sector (+0.6%) stands alone in positive territory as crude extends its gain (+0.7% to $128.30).
As stocks decline, Treasuries are seeing some buying interest with the 10-year note up 17 ticks, sending its yield below 4%.
Meanwhile the VIX, a measure of volatility, extends its gain to 11.5%. The current level of the VIX indicates the S&P 500 will move up or down by 5.7% in the next 30 days.

"employment still weak at 45.5, suggesting this is productivity driven output gains, not employment driven. Therefore, Friday's payroll report could still show a big factory job loss. This report is consistent with about 2.5% GDP growth and represents upside risk to Wed's ISM Non-Mfg report, given the correlation between the two indexes."

The major indices are trading above their worst levels, but continue to post substantial losses.
A good deal of media attention is being placed on news that Wachovia's (WB 22.80, -1.00) CEO was forced out by the company's board. An executive being ousted in the wake of the credit market turmoil is nothing new. Merrill Lynch (MER 43.32, -0.60), Bear Stearns, Citigroup (C 21.56, -0.33) and UBS (UBS 23.51, -0.15) have already replaced their CEOs.
Meanwhile, crude oil has rebounded to a modest gain of 0.4% after being down as much as 1.7%. Commodities as a whole are nearly unchanged with a slight advance of 0.1%.

Lifted smartly to $1.5530 in relatively modest flows, the pair rebounding from $1.5488 area where some previously undisclosed bid interest was resting, a trader says. Rebound sees some euro short-covering and ties in with the recovery in oil prices and the still weak tone of US stocks.

Buyers are not showing much interest as the month of June gets underway despite two better-than-expected economic reports.Just reported, the May ISM Index, a national manufacturing survey, rose 2.1% to 49.6, topping the consensus estimate of 48.5. The index suggests a slight contraction in United States manufacturing activity, as the number falls short of 50.
Separately, April construction spending fell 0.4% month-over-month, which is modestly better than the expected decline of 0.6%. March construction spending was revised higher to a decline of 0.6% from a decline of 1.1%.

Prices paid 87.0 vs 84.5
New orders 49.7 vs 46.5
Employment 45.5 vs 45.4

EUR/USD: $1.5500, $1.5250

USD/JPY: Y108.00

EUR/JPY: Y167.05

EUR/CHF: Chf1.6100

U.S. stocks were set to open lower Monday, with investors wary ahead of a week of new signals about the economy's condition.The Institute for Supply Management issues its monthly report on manufacturing activity at 14:00GMT. Economists surveyed expect the manufacturing index to decline to 48 for May from 48.6 in April. If so, it would be the fourth straight reading below 50, the level that signifies expansion in the sector.

Best Buy The electronics retailer was unveiling a program Monday that would allow customers to bring in old TV sets and other gadgets so that they can be properly disposed, and not poison the nation's landfills.

Futures still holding a negative tone and have worsened slightly over the last hour or so. Dow futures are down 57 now vs losses of 44 a while ago. Nasdaq futures are down 7 now vs -6 earlier.

"I have repeatedly stated that a strong dollar is in our nation's interest. The U.S. dollar has been the world's reserve currency since World War II and there is a good reason for that. The United States has the largest, most open economy in the world, and our capital markets are the deepest and most liquid. The long-term health and strong underlying fundamentals of the U.S. economy will shine through and be reflected in currency values. I am committed to promoting policies that enhance the underlying competitiveness of the U.S. economy and ensure that the dollar remains the world's reserve currency."

The pound may fall further today according to the technical analysis of its price chart, said Kengo Suzuki, currency strategist at Shinko Securities Co. in Tokyo. Sterling is poised to decline as it has failed to break above a cloud on a daily ichimoku chart, Suzuki said. The chart analyzes the midpoints of historic highs and lows and a cloud indicates a resistance zone where sell orders may be clustered. First support at $1.9665 is the base line on the ichimoku chart. Should the pound break through this level, it may fall to second support near its May 14 low of $1.9364, Suzuki said. Support is where buy orders may be clustered.

the next data was issued
07:45 Italy PMI (May) 48,0 48.2
07:50 France PMI (May) 51,5 51.3 51.1
07:55 Germany PMI (May) seasonally adjusted 53,6 53.5 53.6
08:00 EU(15) PMI (May) 50,6 50.5 50.7
08:30 UK Consumer credit (April), bln +0,9 +1.0 +1.2
08:30 UK M4 lending (April) final, bln +27,9 +26.0
08:30 UK M4 money supply (April) final Y/Y 11,1% 11.2%
08:30 UK M4 money supply (April) final 0,6% 0.7%
08:30 UK CIPS manufacturing index (May) 50,0 50.5 51.0

The pound dropped the most in four weeks versus the dollar after Bradford & Bingley Plc, the U.K.'s biggest mortgage lender to landlords, said it will raise more capital because of widening bad-debt provisions. The yen rose as stocks declined, eroding demand for higher-yielding currencies funded by purchases of the Japanese currency.

Anthony Botros, currency dealer at Easy Forex: “Markets are still quietly confident that there's a possibility of another rate hike coming out of the Reserve Bank of Australia in the second half of 2008.”

EUR/USD: $1.5500, $1.5250

USD/JPY: Y108.00

EUR/JPY: Y167.05

EUR/CHF: Chf1.6100

Holger Schmieding, economist at Bank of America: “The ECB will keep the rate on hold well into next year, but they will harden their language at their June meeting, pointing to record inflation as one of the reasons to do so.”

The British pound tumbled on speculation credit losses at banks are deepening, slowing growth and preventing policy makers from raising interest rates to fight inflation. The yen gained versus the euro and the dollar.

The pound dropped the most in four weeks versus the dollar after Bradford & Bingley Plc, the U.K.'s biggest mortgage lender to landlords, said it will raise more capital because of widening bad-debt provisions. The yen rose as stocks declined, eroding demand for higher-yielding currencies funded by purchases of the Japanese currency.

Resistance 3: Y107.00
Resistance 2: Y106.30
Resistance 1: Y105.80
Current price: Y104.86
Support 1: Y104.60

Support 2: Y103.80

Support 3: Y103.20

Comments: Dollar fell. Strong support now comes at session low on Y104.60 with minor level comes on May 28 low at Y103.80 and then – at Y103.20. Resistance is around Thursday’s highs on Y105.80/90. Above there is a way to trend resistance line from Jul 2007 on Y106.30. AbovethemomentumwillriseuptoY107.00.

Resistance 3: Chf1.0580
Resistance 2: Chf1.0520
Resistance 1: Chf1.0440Current price: Chf1.0429

Support 1: Chf1.0390
Support 2: Chf1.0360

Support 3: Chf1.0220

Comments: Dollar trades above session lows on Chf1.0390.Below correction may widen to Chf1.0360 and around May lows on Chf1.0220. The nearest resistance is session hgih at Chf1.0440.Friday’s high around Chf1.0520 is a medium resistance with a break above rate will target Chf1.0580, then - Chf1.0640.

- ECB not satisfied with current inflation; 'not acceptable'.
- Would be worrisom if inflation persisted high or caused spiral.
- No signs of credit crunch in eurozone as in other regions.
- Eurozone growth to slow this year, but still high versus long-term average.

Resistance 3: $1.9850
Resistance 2: $1.9770
Resistance 1: $1.9700
Current price: $1.9619
Support 1: $1.00
Support 2: $1.9520
Support 3: $1.9440
Comments: Cable continues to dip lower. The nearest support is session low at $1.9600. Importnant level is also at $1.9520. Further losses may widen till May 16 low at $1.9440. Growth above recently broken support at $1.9700 will open a way to $1.9770 and than to May high at $1.9850.

Resistance 3:$1.5760
Resistance 2: $1.5660
Resistance 1: $1.5560

Current price: $1.5549

Support 1: $1.5460
Support 2: $1.5420
Support 3: $1.5365

Comments: Euro trades lower resistance level at session high on $1.5560/70, next band of resistance is around $1.5660 and then – on Wednesday’s high on $1.5760.The nearest support remains at Friday’s low on $1.5460. Below losses may extend to $1.5420.

- Says price increases are a "real problem"
- Price stability doesn't hamper job growth
- Markets are in a "significant" correction.

Four major central banks are scheduled to meet this week, including ECB, BoE, RBA and RBNZ. All are expected to leave rates unchanged. Though, markets will pay special attention to RBA's statement on hints of further rate hike, as well as ECB press conference as usual. While ECB rate decision and press conference will take center stage this week, markets will also focus on manufacturing PMI & service PMI, retail sales.

US data begins on Monday with May ISM manufacturing, and April construction spending. Tuesday sees April Factory Orders and weekly ABC consumer confidence, which fell to a new cycle low this past week at -51. Wednesday sees ADP national employment for May, final 1Q non-farm productivity, and May ISM-services. Thursday sees weekly jobless/continuing claims and May chain store sale. Friday sees May US NFP employment data, with market expectations currently centering on -60K jobs change and an increase in the unemployment rate from 5.0% to 5.1%. Multiple Fed speakers are on tap, but the ones addressing the economic outlook are Atlanta's Lockhart on Monday afternoon, Bernanke on Wednesday, Philadelphia's Plosser on Thursday, and Chicago's Evans on Friday.

Eurozone data starts on Monday morning with final May manufacturing PMI's for France, Germany and the Eurozone. Tuesday sees April Eurozone PPI and preliminary 1Q Eurozone GDP. Wednesday sees final May service sector PMI's for France, Germany and the E-zone, final May Eurozone composite PMI, and April Eurozone retail sales. Thursday sees 1Q French employment, April German factory orders, and the ECB rate announcement. Friday sees April French trade balance and April German industrial production.

UK data sees money supply and bank lending data on Monday, along with the manufacturing sector PMI. Tuesday morning sees May construction PMI. At midnight local UK time on Wednesday, Nationwide Building Society will announce its May consumer confidence survey, followed by the May BRC shop price index later in the morning proper. Thursday concludes the data event week with the BOE rate announcement.

Japanese data is very light next week and begins on Monday afternoon Tokyo-time with April labor cash earnings. Wednesday has the only other report of note for the week, with 1Q capital spending set for a morning release.

1.Says inflation expectations "well anchored" around 2.0%
2.Says "we don't like excessive volatility" in FX
3.Says markets should take fundamentals into account
4.Says euro is strong, stable currency

EUR
Bids: $1.5520, $1.5505/1.5490, $1.5460/50
Offers: $1.5580/85, $1.5600/10

JPY
Bids: Y104.60/50
Offers: Y105.60, Y105.85, Y106.00

GBP
Bids: $1.9710/00, $1.9685/75, $1.9665/50
Offers: $1.9770/80, $1.9800, $1.9830

AUSSIE
Bids: $0.9480, $0.9460/50
Offers: $0.9530/50

“The idea that the Fed will continue to cut rates has been completely put to bed and the market is now flirting with the idea of a rate hike,” said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets. “That has given the dollar a boost.”

The dollar snapped a five-day rally against the yen on speculation an industry report today will show U.S. manufacturing contracted for a fourth month.
The currency may decline against the euro before a report on June 6 that will probably show U.S. companies cut workers.
The British pound fell the most in three weeks against the dollar.

EUR/USD fell from $1.5565 to $1.5512 before rate rebounded to $1.5525.
GBP/USD fell from $1.9770 to $1.9700. Rally back to $1.9740 was temporary and currently rate holds near $1.9700.
USD/JPY set stable around session highs on Y105.50 before it retreated to Y105.14.

The Institute for Supply Management's factory index, due at 14:00 GMT, fell to 48.5 in May from 48.6 in the previous month, according to a separate survey. That would be the fourth month below fifty, indicating a contraction. U.S. nonfarm payrolls declined for a fifth month in May by 60,000 workers, according to another survey conducted before the Labor Department report.

Japan's benchmark stock indices ended Monday's session higher across the board, as the strengthening dollar helped fuel an afternoon rally. The benchmark Nikkei 225 was higher by 101.60 points, or 0.71%, at 14440.14. The broader-based TOPIX was higher by 16.96 points at 1425.10.

Crude oil fell last week as the dollar rose against the euro. Oil gained 33% this year as a 6.6% drop in the dollar versus the euro made crude and other commodities a better value for buyers in other currencies. Prices declined last week after a government report Thursday showed that U.S. fuel consumption last week fell from a year earlier.
Thursday, oil in New York dropped $4.41, or 3.4% (the biggest decline since March 31). The fall in prices followed an Energy Department report that showed U.S. fuel demand declined 0.7% to 20.5 million barrels a day in the four weeks ended May 23 compared with the same period a year earlier.

The dollar was headed for a second straight monthly advance against the euro and yen as signs of improving economic growth boosted investor confidence in U.S. assets.
The U.S. currency also traded close to a three-month high versus the yen as traders bet the Federal Reserve will raise interest rates later this year. The dollar pared its monthly gain against the euro Friday as private reports showed a measure of U.S. business activity shrank in May, while manufacturing in the Milwaukee area was the weakest in five years.
``The idea that the Fed will continue to cut rates has been completely put to bed and the market is now flirting with the idea of a rate hike,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``That has given the dollar a boost.''
Futures on the Chicago Board of Trade show a 29 percent chance the Fed will raise its target rate by a quarter- percentage point to 2.25 percent on Sept. 16, up from 19 percent a month ago.
The dollar touched $1.5461 per euro, the strongest level since May 16, before weakening to $1.5550, from $1.5519 Thursday. It has risen 0.4 percent this month. The dollar traded at 105.51 yen, from 105.50 yesterday, when it reached 105.87, the highest since Feb. 28. It has gained 1.5 percent this month against the yen. The euro rose to 164.10 yen, from 163.71 yen Thursday.
The dollar got a brief boost after a government report showed personal income was stronger in April than economists expected. Incomes grew 0.2 percent, bolstered in part by the government's tax rebates, after a 0.4 percent increase the prior month. The median forecast was for a drop to 0.1 percent.

Tech stocks rallied for the fourth session in a row on Friday, on Dell's improved earnings. But the broader market struggled amid rising oil and gas prices, and a mix of economic news that did little to temper fears about a slowdown.
The Dow Jones industrial average lost a few points. The broader Standard & Poor's 500 index gained 0.2% and the Nasdaq composite gained 0.6%. For the month of May, the Dow lost 1.4%. However, the S&P 500 gained around 1% and the Nasdaq gained roughly 4.5%. Economic news for the most part fell on the better side of things this week. Durable orders, excluding the volatile transportation component, jumped 2.5%, first quarter GDP was revised upward to 0.9% from 0.6%, initial claims held fairly steady at 372K and new home sales increased 3.3% in April to an annualized (and still very depressed) rate of 526K units.

Resistance 3: Y107.00
Resistance 2: Y106.30
Resistance 1: Y105.80
Current price: Y105.17
Support 1: Y105.20
Support 2: Y104.60
Support 3: Y103.20
Comments: Techs on dollar hasn’t changed. Strong support comes at session low on Y105.20 with minor level comes on Y104.60 and then – at Y103.20. Resistance is around Thursday’s highs on Y105.80/90. Above there is a way to trend resistance line from Jul 2007 on Y106.30. Above the momentum will rise up to Y107.00.

Resistance 3: Chf1.0640
Resistance 2: Chf1.0580
Resistance 1: Chf1.0520
Current price: Chf1.0429
Support 1: Chf1.0410
Support 2: Chf1.0360
Support 3: Chf1.0220
Comments: Dollar consolidates a bit above session lows on Chf1.0410. Below correction may widen to Chf1.0360 and around May lows on Chf1.0220. Friday’s high around Chf1.0520 is a strong resistance with a break above rate will target Chf1.0580, then - Chf1.0640.

Resistance 3: $1.9900
Resistance 2: $1.9850
Resistance 1: $1.9870
Current price: $1.9722
Support 1: $1.9700
Support 2: $1.9670
Support 3: $1.9580
Comments: Cable holds within the recent range with support comes at $1.9700, Stronger level comes on $1.9670 and $1.9580. Resistance comes at $1.9870. Above the target is at $1.9850 and $1.9900 (May 02 high).

Resistance 3:$1.5760
Resistance 2: $1.5660
Resistance 1: $1.5560
Current price: $1.5525
Support 1: $1.5460
Support 2: $1.5420
Support 3: $1.5365
Comments: Euro remains under pressure with support at Friday’s low on $1.5460. Below losses may extend to $1.5420. Resistance comes at session high on $1.5560, next band of resistance is around $1.5660 and then – on Wednesday’s high on $1.5760.

High Low Close
EUR/USD 1.5566 1.5462 1.5556
USD/JPY 105.73 105.23 105.38
GBP/USD 1.9812 1.9682 1.9807
USD/CHF 1.0525 1.0413 1.0419

EUR/JPY 164.15 163.06 163.99
EUR/GBP 0.7873 0.7831 0.7851
GBP/JPY 208.91 207.71 208.80
GBP/CHF 2.0776 2.0612 2.0647

Change % Change Last
Nikkei 225 +217.95 (+1.52%) 14339.0
DAX 30 +41.76 (+0.58%) 7096.79
САС 40 +38.38 (+0.76%) 5014.28
FTSE 100 -14.60 (-0.2%) 6053.50
Dow -7.90 (-0.06%) 12638.32
Nasdaq +14.34 (+0.57%) 2522.66
S&P +2.12 (+0.15%) 1400.38
10YR 96 +4/32 4.06%% 98 15/32
OIL NYMEX +0.73 (+0.58%) $127.35

06:45 France PPI (April) 0.5% 0.5%
06:45 France PPI (April) Y/Y 5.1% 5.2%
07:45 Italy PMI (May) - 48.2
07:50 France PMI (May) 51.3 51.1
07:55 Germany PMI (May) seasonally adjusted 53.5 53.6
08:00 EU(15) PMI (May) 50.5 50.7
08:30 UK CIPS manufacturing index (May) 50.5 51.0
08:30 UK M4 money supply (April) final - 0.7%
08:30 UK M4 money supply (April) final Y/Y - 11.2%
08:30 UK M4 lending (April) final, bln - +26.0
08:30 UK Consumer credit (April), bln +1.0 +1.2
14:00 USA ISM Mfg business index (May) 49.0 48.6
14:00 USA Construction spending (April) -0.8% -1.1%