"Looking ahead, the indicators are mixed but suggest manufacturing should remain soft but not collapse. Auto production schedules show an increase in June output. The export orders from the recent ISM index, which were at a four-year high, indicate
foreign demand remains strong. However, the Empire State manufacturing survey, the only June regional manufacturing survey out so far, remained weak."

The major indices remain in the red, but pare some of their losses in a broad-based recovery effort.
Mid-cap stocks are outperforming their large-cap counterparts, as demonostrated by the 0.4% rise in the S&P 400. The index is benefiting from a rise in shares of energy companies, with notable strength in Denbury Resources (+2.61) and Newfield Exploration (+3.23).

The dollar dropped against the euro for a second day as declines in housing and industrial production raised speculation that the Federal Reserve will delay increasing borrowing costs this year.
Sterling dropped versus euro as King predicted British inflation will exceed 4 percent this year. The rate accelerated to 3.3 percent in May, the highest level since at least 1997, the Office for National Statistics said in a report. Mervyn King said the path to bringing inflation within the central bank's target is ``uncertain.''
U.S. housing starts dropped to an annual rate of 975,000 in May, from a revised 1.008 million the previous month, the Commerce Department said. It was the lowest since March 1991.
``It doesn't imply we are going to see a quick recovery of the housing market,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank by assets. ``The adverse effects on consumers will continue to be with us for the next two quarters and into 2009.''
Industrial Production
Production in U.S. factories, mines and utilities declined 0.2 percent last month after dropping 0.7 percent in April, the Fed reported. Economists had forecast industrial production would rise 0.1 percent.
The dollar weakened earlier against the euro after the Wall Street Journal and the Financial Times reported the U.S. central bank would probably leave borrowing costs unchanged beyond its June policy meeting.
Futures on the Chicago Board of Trade show a 14 percent chance the Fed will increase the 2 percent target rate for overnight lending between banks by a quarter-percentage point at its June 25 meeting, compared with 26 percent odds yesterday. The balance of bets is for the Fed to keep the rate unchanged. The odds of the central bank raising borrowing costs at the August meeting also fell.
The dollar has lost 10 percent against the euro since the Fed started to lower rates from 5.25 percent in mid-September. The weaker dollar has helped push commodities, such as oil and corn, to record highs, sparking inflation. Prices paid to U.S. producers rose 1.4 percent in May, the biggest gain since November, the Labor Department said.
The euro pared gains against the dollar after a report from the Mannheim-based ZEW Center for European Economic Research showed investor confidence in Germany fell this month to the lowest in more than 15 months.

"Slowing U.S. demand, stronger growth from our major trading partners and a declining trade value of the dollar should result in a stable-to-narrowing deficit in 2008-2010."

Eurozone fundamentals solid.Council in heightened state of alertness.

"weak industrial production report is consistent with our view for a protracted period of sluggish growth."

The stock market falls to a session low, although its loss is modest.
Financials (-2.0%) extend their losses. Regional banks are under selling pressure, with a dip of 4.8%. SunTrust Banks (STI 40.93, -3.62) and Regions Financial (RF 12.87, -0.88) were reinitiated with an Underperform at Friedman Billing.
Crude (-0.2% at $134.40) briefly touched positive territory after trading down nearly 2.0% in earlier trade. Crude traded in an extremely choppy manner yesterday, hitting a record high near $140 and then falling as much as $7.

Stocks were volatile Tuesday morning as investors welcomed Goldman Sachs' better-than-expected earnings report, but remained wary amid mixed readings on the economy, including a rise in a measure of wholesale inflation.
The Dow Jones industrial average lost a few points over an hour into the session. The broader Standard & Poor's 500 index and the tech-heavy Nasdaq composite were both barely changed.
Goldman Sachs beats expectations. The investment bank reported sales and earnings that fell from a year ago, but topped estimates, showing that it continues to avoid the worst of the credit market fallout. Goldman Sachs shares gained 1%.
However, other financial shares weakened. American Express declined after brokerage Friedman Billings reiterated its "underperform" rating, saying that it expects the company to see more losses going forward due to the strapped consumer.
Best Buy tops forecasts. The electronics retailer reported a lower quarterly profit that nonetheless topped estimates. The company also reiterated its full-year sales and earnings forecasts. Investors seemed to take a sell-the-news approach and sent Best Buy stock more than 3% lower. Wholesale prices rise. The May Producer Price Index (PPI), a measure of wholesale inflation, rose 1.4% versus forecasts for a rise of 1%, reflecting the spike in food and energy costs. PPI rose 0.2% in April. The so-called core PPI, which strips out volatile food and energy prices, climbed 0.2%, as expected, after increasing 0.4% in the previous month.
Housing market continues to weaken. Housing starts and building permits both fell in May, with starts missing forecasts and permits, a measure of builder confidence, topping estimates. The number of single-family home starts fell to a 17-year low.
Manufacturing activity weakens. Industrial production fell 0.2% in May, according to a Federal Reserve report Tuesday morning that was worse than expected. Capacity utilization also dipped modestly, to 79.4% from 79.6% in the previous month.
Oil prices slide. U.S. light crude oil for July delivery fell 37 cents to $134.24 a barrel on the New York Mercantile Exchange.

The pare edged up to $1.5510 area as crude oil pares earlier losses. The flows remain dreadfully low, perhaps prompting a few to throw in the towel on any euro shorts. Offers remain at $1.5550/60. Bids back at session low of $1.5460.

The stock market is fluctuating near the unchanged mark, in negative territory. Financials (-0.9%) are acting as the major drag, with 61% of its components in the red. By comparison, 49% of S&P 500 components are posting a loss.
Shares of Best Buy (BBY 44.28, -1.60) spiked higher in premarket trading after the retailer reported better-than-expected earnings, but shares have turned south ahead of the company's conference call. As a result, the stock is the worst-performing name within the S&P 500 Retailing Index (-1.0%).

Seeing little movement but overall holding on to the majority of the recent gains, the overnight high at Y167.84 marking a fresh peak for the year. Techs note the outlook is still positive with the cross trading above the key moving averages, now highlighting trendline resistance at Y168.89. Offers are at Y167.85/168.00, with a break set to expose a steeper move towards last year's lifetime high at Y169.05.

Stocks get off to a modestly higher start to the trading day. Sentiment was lifted by decreased rate hike expectations and better-than-expected earnings reports from Best Buy (BBY) and Goldman Sachs (GS).
Economic news was mixed. May PPI rose a higher than expected amount due to the spike in energy prices, but core PPI -- which excludes food and energy -- was in-line with estimates. Separately, the housing industry is still depressed, but the pace of declines in housing starts is slowing -- which is a positive for the construction spending portion of GDP forecasts

EUR/USD: $1.5250, $1.5400

Stock futures moved off their highs but still remained on the upside Tuesday after a key reading on inflation came in higher than expected and new home construction plummeted.

The Labor Department said producer prices rose 1.4% in May, higher than the 1% rise projected by economists surveyed by Briefing.com.

However, the closely watched core PPI, which excludes volatile food and energy prices, edged higher 0.2%. That was in line with estimates and lower than the 0.4% rise the month before. The Commerce Department also reported that number of new homes breaking ground in May fell 3.3% to a 17-year low.

the next data was issued

08:30 UK RPI-X (May) Y/Y 4,4% 4.0%
08:30 UK Retail prices (May) Y/Y 4,3% 4.2%
08:30 UK Retail prices (May) 0,5% 0.9%
08:30 UK HICP ex EFAT (May) Y/Y 1,5% 1.4%
08:30 UK HICP (May) Y/Y 3,3% 3.0%
08:30 UK HICP (May) 0,6% 0,8%
09:00 EU(15) Trade balance (April) unadjusted, bln +2,2 -2.3
09:00 Germany ZEW economic expectations index (June) -52,4 -43.0 -41.4

The dollar slipped against the euro while sterling sold off widely on Tuesday as traders broadly scaled back expectations of how high U.S., euro zone and UK interest rates will be raised to tame inflation. The dollar initially weakened broadly after the Financial Times and Wall Street Journal reported Fed officials suggesting market expectations of how high and quickly U.S. rates will be raised had gone too far.

The pound fell against the dollar and slid by the most in about two weeks versus the euro after the U.K. government said inflation quickened to the fastest pace in at least a decade, fueling speculation economic growth will slow. The pound's drop against Europe's common currency was the most since June 5 after Bank of England Governor Mervyn King said inflation may breach 4 percent this year.

EUR/USD: Opened in early Europe around $1.5529. European dealing saw an initial extension of the highs to $1.5551, sovereign sales noted here, with rate then dipping lower as the market reacted to comments from ECB's Bini Schmagi. Euro-dollar was trading around $1.5500 prior to the release of weaker than expected German Zew data, subsequently hitting lows around $1.5465. Time spent here was brief however, with rate pushing back to $1.5510 before settling around $1.5490 into early US trade. Offers $1.5550/65, stops above, offers $1.5580, bids $1.5460/50
GBP/USD: Opened early Europe at $1.9681. European dealing opened with cable extending the day's highs before running into supply around $1.9700. Rate eased to $1.9660 before a brief spike higher as UK inflation data came in stronger than expected. A sharp sell-off from here saw cable triggering stops under $1.9650 and $1.9620. sliding to $1.9560 ahead of the release of the explanatory letter to the Treasury from BoE's King. More choppy trade saw cable spiking to $1.9600 before selling off again as King suggested there was "good reason to believe above target CPI is temporary". Cable was extending lows under $1.9480 into early US trade, while euro-sterling advanced to stg0.7952.
USD/JPY: Opened in early Europe around Y107.88. European dealing saw dollar-yen edging back towards the Asian base, this area ultimately giving way. with rate slipping to Y107.61 before running into decent demand. Stops under here held firm, with the pair pushing back above Y108.00 and ending the morning at Y108.10. Euro-yen dropped back through the Asian base to Y167.05 before bouncing to Y167.60 ahead of the US open. Dlr-yen bids Y107.60, stops Y107.50/20, offers Y108.30, Y108.60

Markets focus will be on US data, including Housing starts, Building permits, PPI and Industrial production.

The dollar fell for a second day against the euro before government housing and inflation reports that may add to speculation the Federal Reserve will delay increasing interest rates.
The currency declined from a four-month high versus the yen as economists at Moody's Investors Service Inc. and ABN Amro Holding NV said the Fed won't be in a hurry to raise borrowing costs. Korea's won rose for a second day after the government said it will use a stronger currency to help slow inflation.
``Current market expectations of rate increases have gone too far,'' said Carsten Fritsch, a currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``Pricing in of Fed rate hikes had been the main driver for the rising dollar for the last two weeks. It's now paring those gains.''
The euro pared gains against the dollar after a report showed investor confidence in Germany fell to a more than 15- year low this month. The Mannheim-based ZEW Center for European Economic Research said its index of investor and analyst expectations fell to minus 52.4, from 41.4 in May. Economists expected a decline to minus 42.5.
Losses in the dollar accelerated earlier after the Wall Street Journal and the Financial Times reported the Fed will probably leave borrowing costs unchanged beyond its June policy meeting, said Yuji Saito, head of foreign-exchange sales in Tokyo at Societe Generale SA.
The U.S. currency rose the most against the euro last week since 2005 as Fed Chairman Ben S. Bernanke said economic risks have faded. The dollar will strengthen 3.5 percent to $1.50 per euro by year-end, according to the median forecast of 39 firms surveyed by Bloomberg News.
U.S. housing starts probably dropped to an annual rate of 980,000 in May, from 1.032 million the previous month, according to a survey. The Commerce Department reported that housing starts fell to a 17-year low of 954,000 in March.

- EU inflation to start slowing end-2008 and continue through 2009.
- Slower growth can mitigate only of the inflation risks
- ECB firmly determined to act to assure medium-term price stability

Resistance 3: Y110.00Resistance 2: Y109.20
Resistance 1: Y108.60
Current price: Y108.13
Support 1: Y107.60

Support 2: Y106.50

Support 3: Y106.20

Comments: Dollar rebounds. Resistance is around Y108.60 (yesterday’s high), further level comes at Y109.20. Rise above may extend to Jan 10 high on Y110.00/10. Support comes at Friday’s lows on Y107.60, then support is around Y106.50. Below correction may reach Y106.20.

Resistance 3: Chf1.0620
Resistance 2: Chf1.0520
Resistance 1: Chf1.0450
Current price: Chf1.0397

Support 1: Chf1.0370Support 2: Chf1.0320

Support 3: Chf0.0260

Comments: Dollar rebounds after printing lows on Chf1.0370, further support is on Chf1.0320. Below losses may widen to Chf1.0260. Resistance comes at today's highs on Chf1.0450 with a break above will point to Chf1.0520. Above there is a chance for a rise up to Chf1.0620 (May 08 high).

Resistance 3: $1.9800
Resistance 2: $1.9740Resistance 1: $1.9700
Current price: $1.9517
Support 1: $1.9460
Support 2: $1.9400
Support 3: $1.9360Comments: Cable falls after Boe King comments. Support comes at yesterday's low on $1.9460. Below there is a room for a dipper decline to Friday low $1.9400 and then – to stronger level on $1.9360. Resistance comes at session high on $1.9690/00. Further rise may extend to $1.9740. Stronger level is around Jun 19 highs at $1.9800.

Resistance 3:$1.5820
Resistance 2: $1.5660
Resistance 1: $1.5580
Current price: $1.5498

Support 1: $1.5460
Support 2: $1.5340
Support 3: $1.5300

Comments: Euro trades under pressure after Zew data. Strong support comes at session low on $1.5460, then – on $1.5340 with a break under will open the way to $1.5300 (Friday’s low). Resistance comes at Jun 11 highs on $1.5580, then – near $1.5660. Strongerlevelisaround$1.5820.

- Agrees inflation rise largely due to fuel, food.
- Inflation rise extremely moderate vs 70's/80's
- Pay growth has remained moderate
- Further CPI letters from BOE likley
- Next open letter not needed until Sept under remit
- Govt will continue to support MPC policymaking

-Good Reason To Believe Above Target CPI Temporary
-Path Of Bank Rate To Get CPI To 2% "Uncertain"
-Inflation Should Peak Around End Of The Year

GBP/USD spiked higher on the UK inflation data, pushing up to session highs on $1.9700. But offers seen from here to $1.9720 capped this rally and rate currently holds near $1.9623.

1.Says ECB rate policy doesn't need to follow US
2.Says 25bps rate rise would bring inflation to about 2%
3.Says rise in oil price may leave mark in H2

EUR
Bids: $1.5500, $1.5460/55
Offers: $1.5550, $1.5580

JPY
Bids: Y107.75/65, Y107.50
Offers: Y108.60

GBP
Bids: $1.9640/30, $1.9600
Offers: $1.9720, $1.9800

AUSSIE
Bids: $0.9350/30
Offers: $0.9450

The dollar fell for a second day against the euro before government housing and inflation reports that may add to speculation the Federal Reserve will delay increasing interest rates.
The currency declined from a four-month high versus the yen as economists at Moody's Investors Service Inc. and ABN Amro Holding NV said the Fed won't be in a hurry to raise borrowing costs.
Gains in the euro may be limited by speculation investor confidence in Germany fell to a 15-year low this month. The ZEW Center for European Economic Research will say its index of investor and analyst expectations fell to minus 42.5 from minus 41.4 in May, according to a survey.

EUR/USD tested $1.5555 before it retreated to $1.5528.
GBP/USD slowly rose from $1.9690 before sliding to $1.9672.
USD/JPY fell from Y108.00 to Y107.60.

Later focus will be on US data, including Housing starts, Building permits, PPI and Industrial production.

Japanese stock indices ended Tuesday's session flat to narrowly mixed. The benchmark Nikkei 225 was 6.00 points, or 0.04%, lower at 14348.37. The broader-based TOPIX was ahead by just 0.29 points at 1401.98.

Stock market fixing:
Nikkei +380.64 +2.7% 14,354.37
Topix +30.12 +2.2% 1,401.69
FTSE -8.20 -0.14% 5,794.60
DAX -35.44 -0.52% 6,729.88
CAC -24.56 -0.52% 4,657.74
Dow -38.27 -0.31% 12,269.08
NASDAQ +20.28 +0.83% 2,474.78
S&P +0.11 +0.01% 1,360.14

10yr Note -0.1600 -0.038% 4.245%
NYMEX Crude Oil -0.25 -0.19% 134.61
Gold +13.20 +1.51% 886.30

Japan's stocks climbed the most in two weeks after the yen fell to its weakest in four months, boosting earnings at auto and electronics manufacturers.
Toyota Motor Corp., which gets about half its profit from North America, and its subsidiary Daihatsu Motor Co. led automakers higher, while Matsushita Electric Industrial Co. climbed the most in more than two weeks. Mitsui & Co., which derives more than half its profit from commodities, had the biggest gain in a month.
The Nikkei 225 Stock Average climbed 380.64, or 2.7%, to close at 14,354.37 in Tokyo. The broader Topix index added 30.12, or 2.2%, to 1,401.69. Both benchmarks posted their biggest rise since May 29. Four stocks rose for each that fell on the Topix.
The yen depreciated to as much as 108.40 today, the weakest since Feb. 14, from 107.82 at the close of stock trading in Tokyo on June 13, after finance ministers from the world's richest nations expressed support for the U.S. currency.

European stocks fell for the first time in three days as concern deepened that higher raw-material costs will erode earnings for airlines and food companies, while a report signaled further weakening in the U.S. economy.
British Airways Plc, Europe's third-biggest carrier, slipped the most in a week and Bayerische Motoren Werke AG dropped to a three-month low as oil rallied to a record and manufacturing in New York shrank more than economists expected. Groupe Danone SA, the world's largest yogurt maker, and Unilever retreated after UBS AG recommended selling the stocks.
British Airways sank 4.5%. Ryanair Holdings Plc, Europe's biggest discount airline, tumbled 4.9%. Deutsche Lufthansa AG decreased 1.1%.
Danone dropped 2.8%. Unilever, the world's second-biggest consumer-goods company, fell 2.9%. UBS downgraded the stocks to ``sell'' from ``neutral,'' citing a deteriorating outlook for consumer spending and higher energy costs.
Barclays Plc added 3.5%, the steepest gain in two months, after the U.K.'s fourth-biggest lender by market value said a sale of shares was ``under active consideration'' and profit rose.

Wall Street closed mix Monday on rising crude prices, weak manufacturing index; GE downgraded.
Published before the bell report showed 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 reported a roughly $2.8 billion quarterly loss, in line with a warning last week, after posting huge trading and hedging losses.
AIG 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.
AT&Tand Verizon Communicationswere both downgraded to "neutral" from "buy" by brokerage UBS, according to published reports.
JP Morgan cut its rating on the GE conglomerate to "neutral" from "overweight".

The dollar may extend its drop against the euro on speculation a weakened U.S. economy will discourage the Federal Reserve from increasing borrowing costs this year.
The U.S. currency fell Monday as New York state manufacturing shrank in June and crude oil prices touched a record high of $139.89 a barrel. The Federal Reserve Bank of New York's general economic index, a gauge of manufacturing, decreased to minus 8.7 in June from minus 3.2 the prior month. Readings less than zero signal contraction.
Fed funds futures on the Chicago Board of Trade show a 68 percent chance the U.S. central bank will increase the 2% target lending rate by at least a quarter-percentage point at its August meeting. There are 26% odds policy makers will lift the rate to 3% by December.
The yen fell to an eight-month low versus the euro as reduced currency volatility encouraged investors to buy higher-yielding assets funded by low-cost loans in Japan.

EUR/USD printed lows on $1.5344 before starting to rebound to $1.5520.
GBP/USD held the most of the day within the narrow $1.9620/60 range.
USD/JPY fell from Y108.60 to Y107.90. Later rate set stable around Y108.00/30.

In Europe attention will be on ZEW economic expectation index with analysts predict index fell to -43,0 in June versus -41,4 month earlier.
Later focus will be on US data, including Housing starts, Building permits, PPI and Industrial production.

Resistance 3: Y110.00
Resistance 2: Y109.20
Resistance 1: Y108.60
Current price: Y107.85
Support 1: Y107.60
Support 2: Y106.50
Support 3: Y106.20
Comments: Dollar weakens with no major changes in techs. Resistance is around Y108.60 (yesterday’s high), further level comes at Y109.20. Rise above may extend to Jan 10 high on Y110.00/10. Support comes at Friday’s lows on Y107.60, then support is around Y106.50. Below correction may reach Y106.20.

Resistance 3: Chf1.0620
Resistance 2: Chf1.0520
Resistance 1: Chf1.0460
Current price: Chf1.0397
Support 1: Chf1.0380
Support 2: Chf1.0320
Support 3: Chf0.0260
Comments: Dollar retreats with support comes at yesterday’s lows on Chf1.0380, then – on Chf1.0320. Below losses may widen to Chf1.0260. Resistance comes at Monday’s highs on Chf1.0460 with a break above will point to Chf1.0520. Above there is a chance for a rise up to Chf1.0620 (May 0 high).

Resistance 3: $1.9800
Resistance 2: $1.9740
Resistance 1: $1.9690
Current price: $1.9682
Support 1: $1.9610
Support 2: $1.9550
Support 3: $1.9400
Comments: Cable looks optimistic. Support comes at session low on $1.9610. Below there is a room for a dipper decline to 50% Fibo of yesterday’s rally at $1.9550 and then – to stronger level on $1.9400 (Friday’s low). Resistance comes at yesterday’s high on $1.9690/00. Further rise may extend to $1.9740. Stronger level is around Jun 19 highs at $1.9800.

Resistance 3:$1.5820
Resistance 2: $1.5660
Resistance 1: $1.5580
Current price: $1.5532
Support 1: $1.5460
Support 2: $1.5340
Support 3: $1.5300
Comments: Euro continues to rebound after Friday's sell-off. Resistance comes at Jun 11 highs on $1.5580, then – near $1.5660. Stronger level is around $1.5820. Strong support comes at session low on $1.5460, then – on $1.5340 with a break under will open the way to $1.5300 (Friday’s low).

High Low Close
EUR/USD 1.5438 1.5344 1.5423
USD/JPY 108.58 107.89 108.21
GBP/USD 1.9687 1.9465 1.9631
USD/CHF 1.0518 1.0378 1.0450

EUR/JPY 167.65 166.42 167.37
EUR/GBP 0.7899 0.7858 0.7875
GBP/JPY 212.82 210.77 212.44
GBP/CHF 2.0533 2.0391 2.0515

Change % Change Last
Nikkei +380.64 +2.7% 14,354.37
Topix +30.12 +2.2% 1,401.69
FTSE -8.20 -0.14% 5,794.60
DAX -35.44 -0.52% 6,729.88
CAC -24.56 -0.52% 4,657.74
Dow -38.27 -0.31% 12,269.08
NASDAQ +20.28 +0.83% 2,474.78
S&P +0.11 +0.01% 1,360.14
10yr Note -0.1600 -0.038% 4.245%
NYMEX Crude Oil -0.25 -0.19% 134.61
Gold +13.20 +1.51% 886.30

08:30 UK HICP (May) - 0.8%
08:30 UK HICP (May) Y/Y - 3.0%
08:30 UK HICP ex EFAT (May) Y/Y - 1.4%
08:30 UK Retail prices (May) - 0.9%
08:30 UK Retail prices (May) Y/Y - 4.2%
08:30 UK RPI-X (May) Y/Y - 4.0%
09:00 Germany ZEW economic expectations index (June) -43.0 -41.4
09:00 EU(15) Trade balance (April) unadjusted, bln - -2.3
12:30 USA Housing starts (May), mln 1.000 1.032
12:30 USA Building permits (May), mln 0.960 0.978
12:30 USA PPI (May) 1.0% 0.2%
12:30 USA PPI (May) Y/Y - 6.5%
12:30 USA PPI excluding food and energy (May) 0.2% 0.4%
12:30 USA PPI excluding food and energy (May) Y/Y - 3.0%
12:55 USA Redbook (14.06)
13:15 USA Industrial production (May) 0.2% -0.7%
13:15 USA Capacity utilisation (May) 79.8 79.7
23:50 Japan BoJ meeting minutes (30.04, 19-20.05)