"The core CPI was well behaved in May, but apparent shifts in inflation expectations and surging prices of imports leave upside risks on inflation. Despite the inflation risks, we look for the Fed to hold policy steady over the balance of the year."

Crude oil is now trading down 0.7% to $133.90 per barrel -- which is $6 less than its all-time high that was reached early this morning. The stock market climbs into positive territory thanks to mostly broad-based buying interest, with notable strength within tech (+0.7%) and other larger cap names within the Nasdaq 100 (+1.1%).

Contract trades at $134.25, down $0.65 on the day after $4+ of gains earlier.

The major indices continue to trade in mixed fashion. The S&P 500 has traded in negative territory for the overwhelming majority of the session.
The consumer staples sector (-1.5%) extends its losses, falling to session lows. PepsiCo (PEP 65.48, -2.06) is the worst performing name, although there does not appear to be a specific item that accounts for the selling interest. Competitor Coca-Cola (KO 54.17, -1.25) is also facing selling pressure.
The financials sector (+0.6%) is in positive territory, but is well off its high when it was up 2.0%. Goldman Sachs (GS 180.73, +2.44) laid off investment bankers last week in response to the sluggish merger activity, according to Reuters.com.

The dollar fell the most against the euro in more than a week as New York state manufacturing shrank in June and the Group of Eight's weekend summit stopped short of calling for a strong U.S. currency.
An index tracking the dollar against the currencies of six U.S. trading partners dropped from the highest level since February. The Norwegian krone was the biggest gainer versus the dollar among the major currencies and the Canadian dollar appreciated the most against the greenback in almost a month as crude oil surged to a record $139.89 a barrel.
``As long as oil keeps rallying, the dollar will be under pressure,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York.
Dollar Versus Yen
The dollar will rise to 110 against the yen by year-end, compared with a previous estimate of 103, and will climb to 112 by the end of March, compared with a previous forecast of 105, Tokyo-based JPMorgan Chase & Co. currency strategists Tohru Sasaki and Junya Tanase wrote in a research note today.
The greenback weakened versus the euro as a gauge of New York manufacturing dropped. The Federal Reserve Bank of New York's general economic index decreased to minus 8.7 in June from minus 3.2 the prior month. Readings less than zero signal contraction. The Empire State gauge began in 2001.
The euro rose earlier versus the dollar after the European Union's statistics office reported that the annual inflation rate accelerated to 3.7 percent in May, the highest level since June 1992.
G-8 Meeting
The dollar weakened as the G-8, which comprises the U.S., Japan, Russia, Germany, France, the U.K., Italy and Canada, stuck to its practice over the weekend of not making a joint comment on currencies when central bankers are absent.
``The world economy continues to face uncertainty, and downside risks persist,'' G-8 officials said in a statement on June 14 after a meeting in Osaka, Japan. ``Elevated commodity prices, especially of oil and food, pose a serious challenge.''
The U.S. currency rose last week the most against the euro since 2005 as Fed Chairman Ben S. Bernanke said economic risks have faded, raising speculation policy makers will increase borrowing costs this year to contain inflation.
The dollar will strengthen 3 percent to $1.50 per euro by year-end, according to the mean estimate. Economists anticipate that the ECB will raise rates a quarter-percentage point by September and then cut borrowing costs by year-end. The Fed will boost rates three-quarters of a percentage point by the end of the third quarter of 2009, according to data.

July Nymex crude oil has broken out of the bull-flag continuation pattern and hit fresh record high at $139.89, just below the daily Bollinger band top. The fast 10-day momentum study is now beginning to pick up steam and implies upside risks to target gains to $146.44 -- the equality move of $110.30-$135.09.

Wall Street struggles for direction on rising crude prices, weak manufacturing index; GE downgraded.
Blue chips dipped and the broader market was mixed Monday morning as oil prices hit a new record near $140 a barrel, a weak manufacturing report revived recession fears and a brokerage downgraded a pair of Dow components.
The Dow Jones industrial average lost 0.3% about 90 minutes into the session. The broader Standard & Poor's 500 index lost a few points and the Nasdaq composite inched higher.
Oil prices jump: U.S. light crude oil for July delivery rallied $3.04 to $137.90 a barrel on the New York Mercantile Exchange after touching an all-time trading high of $139.89 earlier. Oil prices jumped on the weaker dollar and reports of a North Sea Rig fire.
Reports that Saudi Arabia plans to boost oil production by 200,000 barrel per day had little impact on the price Monday.
Key manufacturing index slips. The NY Empire State index, a regional manufacturing reading, fell to -8.7 from a prior reading of -3.2. Economists thought it would improve to -2.0. Any reading that is positive implies expansion in the sector, while a negative reading implies further weakness.
Lehman Brothers reports big loss. The investment bank reported a roughly $2.8 billion quarterly loss, in line with a warning last week, after posting huge trading and hedging losses.
AIG loses CEO. The insurer became the latest financial firm to announce a management shakeup as a result of steep losses stemming from the mortgage crisis. CEO Martin Sullivan is out and the company's chairman, Robert Willumstad, is in as chief executive. Willumstad will also hang on to the chairman job. AIG shares were barely changed.
Telecoms downgraded.
AT&T and Verizon Communications were both downgraded to "neutral" from "buy" by brokerage UBS, according to published reports.
GE downgraded. JP Morgan cut its rating on the conglomerate to "neutral" from "overweight".

The S&P 500 climbs to the unchanged mark, as the financial sector (+1.9%) hits its best level of the session. Five of the ten economic sectors are now in positive territory. The Nasdaq is outperforming as it posts a modest gain.
Within the Nasdaq, maker of BlackBerry devices Research In Motion (RIMM 137.65, +4.69) is leading the way on several positive brokerage comments. Teva Pharmaceutical (TEVA 44.36, +2.01) is showing strength after announcing that a phase III study showed Azilect can slow down the progression of Parkinson's disease. Apple (AAPL 170.25, -2.12) is acting as the Nasdaq's limiting factor.

``Europe's inflation rate remains very high,'' said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp., the second-largest in the U.S. ``The ECB will highly likely raise rates in July, and there is some risk it will raise one more after that. This will support the euro.'' The euro may trade from $1.53 to $1.56 this week, she said.

The stock market is in the red, although it is trading at its best level of the session as the financial sector (+1.4%) rallies. Lehman Brothers (LEH 27.51, +1.70) is leading the push higher, after reporting its second quarter results earlier this morning. The firm lost $2.8 billion in the second quarter, or $5.14 per share, matching its preannouncement.
Telecom (-2.2%) is the worst-performing sector this session, and is the second worst-performing this year with a loss of 16% -- compared to financials year-to-date decline of 20%. The selling interest this session is driven by downgrades of Verizon (VZ 36.24, -1.09) and AT&T (T 35.80, -0.88) to Neutral from Buy at UBS.

``There is room for euro appreciation in the next few months,'' said Marios Maratheftis, a currency analyst at Standard Chartered Plc London, in an interview on Bloomberg Television. ``The expectation of something coming out of the G-8 meeting was a bit over-optimistic. I do not share the optimism of the market when it comes to the U.S. economy.''

Buyers are not showing much interest in the early-going as the major indices post modest losses. Eight of the ten economic sectors are in negative territory, led by weakness in telecom (-2.3%) and healthcare (-1.0%). Financials (+0.2%) and energy (+0.5%) are the best-performing sectors.
Although financials are outperforming, insurance giant AIG (AIG 34.02, -0.16) is posting a loss of 0.5%. The Dow component ousted its CEO in response to the company's poor performance and handling of the credit market turmoil. AIG said the managment change is not in response to its second quarter results, which the company is expected to report sometime in August.
Crude oil futures are posting a substantial gain of 2.2% at $137.89 per barrel, qlthough they did slip from their all-time high of $139.89 per barrel. Meanwhile, the dollar hits session lows, falling 0.9% against a basket of world currencies. The weakness in the dollar is going a boost to gold (+2.0% to $887.80).

EUR/USD: $1.5300, $1.5585

USD/JPY: Y107.00

EUR/JPY: Y167.00

AUS/USD: $0.9400, $0.9575

KIWI: $0.7500

Stocks looked set for a weak open Monday, as investors awaited more details about Lehman's massive quarterly loss and digested a shakeup at insurer AIG.
Lehman Brothers reported $2.8 billion loss for the quarter.Companies to watch include AIG, which ousted its chief executive over the weekend after losing $7.8 billion in the first quarter from investments related to the housing market collapse. The insurer said former Citigroup executive Robert Willumstad will take over from Martin Sullivan.
Among M&A news, the Federal Communications Commission chairman recommended approval of a $5 billion merger between Sirius Satellite Radio Inc. (SIRI) and XM Satellite Radio Holdings (XMSR).

Presses to fresh lows for the session below Y108.00 with prints to Y107.95 as dollar slips across the board following weaker than expected Empire State data, the pair easing through earlier noted bids ahead of Y108.00. Further demand seen at Y107.90/00 providing the current cushion with better interest seen Y107.70/65 and flows described as light.

- Priority stabilizing medium-term inflation expectations
- ECB's message on July was clear enough
- Exchange rate is not a policy target

the next data was issued
09:00 EU(15) Harmonized CPI ex EFAT (May) Y/Y 1,7% 1.6%
09:00 EU(15) Harmonized CPI (May) final Y/Y 3,7% 3.6% 3.3%
09:00 EU(15) Harmonized CPI (May) final 0,6% 0.3% 0.3%

The dollar came under some pressure on Monday after a Group of Eight meeting yielded no joint statement on currencies, while the euro recovered losses sparked by the Irish rejection of the EU reform treaty.
The yen aside, the dollar was broadly softer versus majors after G8 finance ministers, in the absence of central bankers, avoided commenting on currencies and instead focused on soaring commodity prices
Analysts said the euro would remain supported on the possibility that the European Central Bank may lift rates as early as July due to rising inflation risks. Data on Monday showed euro zone May inflation revised up to a new record high of 3.7%.
The dollar, however, could come under pressure if quarterly earnings announcements by U.S. investment banks this week rekindle concerns about the financial sector's losses from the turmoil in credit markets, traders said.

EUR/USD: Opened in early Europe around $1.5398. European dealing opened with Russian supply knocking the pair lower, stops hit under the Asian low at $1.5375/70, with euro-dollar sliding to $1.5347. UK clearer demand was then noted, driving the rate back above $1.5400 as Russian demand emerged. Euro-dollar made marginal highs at $1.5440, the showing little reaction to the upward revisions to eurozone May HICP, though comments from the EU Commission, together with US bank demand the lifted the pair to $1.5476.
GBP/USD: Opened early Europe at $1.9522. European dealing opened with cable trading around $1.9520, euro-dollar moves seemingly dictating the way, pulling cable down to $1.9500 before bouncing. Cable was able to push on to fresh highs for the day, triggering stops on the break of $1.9580 en-route to initial highs at $1.9606. late morning move to fresh highs in euro-dollar then pulled cable up to $1.9647. Cable offers $1.9645/55, $1.9665/70, bids $1.9500
USD/JPY: Opened in early Europe around Y108.30. With the dollar finding demand across the board into European trade, dollar-yen was able to take out last week's highs, pushing above Y108.50 and on to a Y108.59 high. Offers ahead of the February Y108.62 high kicked in here, with rate easing to Y108.30. Dlr-yen offers Y108.60/80, stops above, bids Y108.10/00, Y107.90/70

The main focus now is on US data, including NY manuf. Index (median 0,0 versus -3,2) and TICS (median -48,2B).

Currency forecasters are betting that the dollar rally is just getting started as the Federal Reserve's shift to fighting inflation makes it likely to raise interest rates more aggressively than the European Central Bank.
The currency will strengthen 2.5 percent to $1.50 per euro by year-end, according to the mean estimate of 39 firms surveyed by Bloomberg. Economists anticipate that the ECB will raise rates a quarter-percentage point by September and then cut borrowing costs by yearend. Fed Chairman Ben S. Bernanke, who said he's ``attentive'' to the U.S. currency, will boost rates three-quarters of a percentage point by the end of the third quarter of 2009, according to data compiled by Bloomberg.
``Verbal intervention has become more powerful,'' said Daniel Janis, who helps manage the $2 billion John Hancock Strategic Income Fund in Boston. ``You are likely to see a more stable dollar.''
UBS AG, the second-biggest currency trader, last week cut its one- and three-month dollar forecasts against the euro to $1.60 and $1.53, from estimates of $1.50 and $1.47, respectively. Citigroup Global Markets Inc. reversed its bet on dollar gains, expecting the currency to fall to $1.63 within two months. The dollar will trade at $1.50 to the euro and 105 yen by the end of the year, according to analysts in a Bloomberg survey.
The pound rose against the dollar and euro for a second day on speculation U.K. inflation exceeded the Bank of England's limit in May.
The U.K. currency advanced as economists forecast inflation probably reached 3.2 percent last month. A reading of 3.1 percent or more requires central bank Governor Mervyn King to write a letter to Chancellor of the Exchequer Alistair Darling explaining how he plans to return the measure to the government's 2 percent target. The statistics office report is due tomorrow.

Resistance 3: Y110.00Resistance 2: Y109.20
Resistance 1: Y108.50
Current price: Y108.22
Support 1: Y107.60

Support 2: Y106.50

Support 3: Y106.20

Comments: Techs is steady. Dollar advances, testing resistance at Y108.50 with the next band of resistance is around Y109.20. Above there is a chance for a rise up to Jan 10 high on Y110.00/10. Support comes at Friday’s low on Y107.60, then – on Y106.50 and Y106.20.

Crude oil prices have reversed overnight correction on short-covering and comments from UK Prime Minister Brown -- "will intensify sanctions if Iran doesn't co-operate". Oil prices fell overnight on reports that Saudi Arabia is ready to increase production by another 200k barrels/day next month. WTI Nymex crude oil is at $135.65, up 79 cents.

Resistance 3: Chf1.0620
Resistance 2: Chf1.0580
Resistance 1: Chf1.0540
Current price: Chf1.0439

Support 1: Chf1.0380
Support 2: Chf1.0300

Support 3: Chf0.0180

Comments: Dollar retreats. Support is around Friday's lows on Chf1.0380, then – Chf1.0300. Below losses may widen to Chf1.0180. Resistance comes at Friday’s highs on Chf1.0540 with a break above will open the way to Chf1.0580. Above there is a room for a rise to Chf1.0620 (May 08 high).

UK BROWN: Discussed Iran nuclear issue with Bush
- Will intensify sanctions if Iran doesn't co-operate
- New phase of sanctions against Iran oil and gas.

BUSH: Welcomes strong, clear, needed statement on Iran
- Iranian leaders face "serios isolation"
- Iran must understand "all options are on the table"

Resistance 3: $1.9750
Resistance 2: $1.9660
Resistance 1: $1.9600
Current price: $1.9578
Support 1: $1.9470
Support 2: $1.9410
Support 3: $1.9360Comments: Cable trades below recently printed high on $1.9600 with a break above will open the way to Wednesday’s high on $1.9660. Stronger level comes at Jun 10 high on $1.9750. Support is around asian high at $1.9470. Stronger level comes near Friday’s low on $1.9410 and then – on $1.9360 (May lows).

The Japanese government has lowered its overall assessment of the economy for the second time in four months, pointing to slower export growth and weaker production in its monthly economic report for June released on Monday. "While the economic recovery appears to be pausing, weak movements are seen recently," the Cabinet Office said in the report.

- Rising global inflation risk one factor behind market uncertainty.
- Financial markets remain volatile, unstable.

Resistance 3:$1.5820
Resistance 2: $1.5600
Resistance 1: $1.5480
Current price: $1.5438
Support 1: $1.5340
Support 2: $1.5300
Support 3: $1.5260
Comments: Euro continues to rebound after Friday's sell-off. Resistance comes at Friday’s highs on $1.5480, then – on Thursday’s high at $1.5590/00. Stronger level comes at $1.5820. Minor support is around hourly low on $1.5340, stronger – near $1.5290/00 (Friday’s low). Break under will open the way to $1.5260.

EUR/USD: $1.5300, $1.5585
USD/JPY: Y107.00
EUR/JPY: Y167.00
AUS/USD: $0.9400, $0.9575
KIWI: $0.7500

Central banks rate speculations will remain the dominant driving force in the forex markets. In particular, markets. In particular, housing and growth data from US will be closely watched to solidify the expectation that Fed is on the road to rate hikes. NABH housing markets will be released, so is new residential constrcution data. Empire State manufacuting, Philly Fed survey will also be closely watched together with industrial productions. PPI inflation will also be paid attention too.

Eurozone HICP final, Germany ZEW will be featured.

From UK, main focus will be on Tuesday's CPI release. Note that the headline CPI is expected to accelerate to 3.2% yoy in May which will trigger an open letter from BoE King to Chancellor of the Exchequer. BoE meeting minutes will be another focus. These two events will provide the clues on whether BoE will be on hold to guard against inflation. Retail sales will be another focus.

SNB will have their quarterly rate setting meeting this week and is expected to keep rates unchanged at 2.75%.

Canadian CPI will be released this week too and would probably provide the support to BoC's decision to keep rates unchanged last week. Retail sales will also be featured.

RBA meeting minutes will be watched for the hints on whether RBA is on the road to further tightening.

EUR/USD pushing back up to a $1.5430 now, triggering a few intra-day shorts, with traders noting Russian demand, the same account said to have been the early seller. Offers around the $1.5436 overnight high seen as the next target.

1.MonPol course somewhat accommodative.
2.Inflation expectations are trending upwards.
3.Economic outlook particularly uncertain.
4.Monetary trends show upside inflation risks.
5.Can't rule out future high wages hikes.

European stocks are paring back opening gains, with traders cautious ahead of key quarterly results from Lehman Brothers today, Goldman Sachs on Tuesday, Morgan Stanley on Wednesday. CAC-40 is down 15pts (-0.32%), FTSE-100 is flat, Xetra-DAX is up 12pts (+0.18%).

EUR
Bids: $1.5370, $1.5300, $1.5280, $1.5250
Offers: $1.5435/50

JPY
Bids: Y108.15/10, Y107.75/70
Offers: Y108.50/60

GBP
Bids: $1.9500, $1.9460/55, $1.9415/10
Offers: $1.9550, $1.9580

1.Growth slowdown is likely to be temporary
2.Markets understood ECB signal correctly
3.Inflation above 3.00% in the short-term
4.Inflatioon to slow in the course of 2009

The yen fell against the euro, approaching a seven-month low, as gains in Asian stocks encouraged investors to add to holdings of higher-yielding assets funded in the Japanese currency.
The dollar weakened against the euro and the pound after the Group of Eight stopped short of calling for a stronger U.S. currency in a statement after a summit over the weekend.
The euro may be supported by speculation rising prices will prompt the European Central Bank to raise interest rates more than once this year.
The inflation rate in the euro area rose to 3.6% in May, matching a 16-year high, from 3.3% in April, the European Union statistics office in Luxembourg may say today.
The dollar has fallen against 11% of the 16 most-active currencies this year as oil has surged.

EUR/USD printed highs on $1.5421 before sliding to $1.5340 lows. Later rate rebounded to $1.5371.
GBP/USD slowly rose from $9496 to $9544.
USD/JPY held within the Y108.10 range before rising to Y108.50.

Todayat09:00 GMTEUHICPreportisduetocome. ButmainfocusisonUSdata, includingNYmanuf. Index(median0,0 versus-3,2) andTICS (median-48,2B).

The weaker yen and the pre-weekend rally on Wall St helped send Japanese stocks higher Monday, with benchmark indices ending sharply higher. The benchmark Nikkei 225 gained 380.64 points, or 2.72, to stand at 14354.37. The broader-based TOPIX gained 30.12 points to end the session at 1401.69.

U.S. stock indexes gained Friday, paring the week's losses, after oil retreated and some measures of inflation matched economists' forecasts, damping speculation the Federal Reserve will boost interest rates this year. The Standard & Poor's 500 Index added 1.5%. The Dow Jones Industrial Average jumped 1.4%. The Nasdaq Composite Index advanced 2.1%.

The lineup of Fed speakers included Fed Chairman Bernanke himself, as well as Vice Chairman Kohn, New York Fed President Geithner, Dallas Fed President Fisher and Philadelphia Fed President Plosser. The latter two Fed members have been the biggest inflation hawks at the Fed, having dissented on either the need to cut rates, or the amount by which rates were cut, at recent Fed meetings. Central bank officials in Europe also sounded a similarly hawkish note.

The dollar posted its biggest weekly gain versus the euro in three years as traders bet the Federal Reserve will increase borrowing costs this year and Irish voters may have rejected a European Union treaty.
The U.S. currency rose to a one-month high against the euro on bets Group of Eight finance ministers meeting this weekend will signal they favor a stronger dollar. The yen was poised for a fifth weekly drop against the euro after the Bank of Japan left its target lending rate at 0.5 percent, the lowest among industrialized nations.

Resistance 3: Y110.00
Resistance 2: Y109.20
Resistance 1: Y108.50
Current price: Y108.51
Support 1: Y107.60
Support 2: Y106.50
Support 3: Y106.20
Comments: Dollar advances, testing resistance at Y108.50 with the next band of resistance is around Y109.20. Above there is a chance for a rise up to Jan 10 high on Y110.00/10. Support comes at Friday’s low on Y107.60, then – on Y106.50 and Y106.20.

Resistance 3: Chf1.0620
Resistance 2: Chf1.0580
Resistance 1: Chf1.0540
Current price: Chf1.0475
Support 1: Chf1.0450
Support 2: Chf1.0380
Support 3: Chf0.0300
Comments: In general, techs picture hasn’t changed. Resistance comes at Friday’s highs on Chf1.0540 with a break above will open the way to Chf1.0580. Above there is a room for a rise to Chf1.0620 (May 08 high). Support is around session lows on Chf1.0450, then – Friday’s low at Chf1.0380. Below losses may widen to Chf1.0300.

Resistance 3: $1.9750
Resistance 2: $1.9660
Resistance 1: $1.9530
Current price: $1.9530
Support 1: $1.9480
Support 2: $1.9410
Support 3: $1.9360
Comments: Cable challenges session highs on $1.9520/30 with a break above will open the way to Wednesday’s high on $1.9660. Stronger level comes at Jun 10 high on $1.9750. Support is around $1.9480. Stronger level comes near Friday’s low on $1.9410 and then – on $1.9360 (May lows).

Resistance 3:$1.5820
Resistance 2: $1.5600
Resistance 1: $1.5480
Current price: $1.5412
Support 1: $1.5340
Support 2: $1.5300
Support 3: $1.5260
Comments: Euro rebounds after Friday's sell-off. Resistance comes at Friday’s highs on $1.5480, then – on Thursday’s high at $1.5590/00. Stronger level comes at $1.5820. Minor support is around hourly low on $1.5340, stronger – near $1.5290/00 (Friday’s low). Break under will open the way to $1.5260.

High Low Close
EUR/USD 1.5481 1.5300 1.5360
USD/JPY 108.36 107.64 108.19
GBP/USD 1.9512 1.9408 1.9470
USD/CHF 1.0538 1.0385 1.0491

EUR/JPY 166.89 165.65 166.21
EUR/GBP 0.7943 0.7868 0.7886
GBP/JPY 210.81 209.68 210.69
GBP/CHF 2.0491 2.0232 2.0425

Change % Change Last
Nikkei 225 +85.13 (+0.61%) 3973.73
Topix +8.43 (+0.6%) 1371.57.
DAX 30 +50.80 (+0.76%) 6765.32
САС 40 +10.00 (+0.21%) 4682.30
FTSE 100 +12.30 (+0.21%) 5802.80
Dow +165.77 (+1.35%) 12307.35
Nasdaq +50.15 (+2.09%) 2454.50
S&P +20.16 (+1.50%) 1360.03
10YR 96 +5/32 4.25% 96 30/32
OIL NYMEX -1.88 (-1.37%) $134.86

09:00 EU(15) Harmonized CPI (May) final 0.3% 0.3%
09:00 EU(15) Harmonized CPI (May) final Y/Y 3.6% 3.3%
09:00 EU(15) Harmonized CPI ex EFAT (May) Y/Y - 1.6%
12:30 USA NY Fed Empire State manufacturing index (June) 0.0 -3.2
13:00 USA TICS (April), bln - -48.2
13:00 USA TICS long-term (April), bln - 80.4
23:50 Japan Tertiary activity index (April) - 0.3%