“Higher oil prices mean consumers will spend less on non- gas items, and that will weigh on the economy,” said Adam Fazio, a currency strategist at CIBC World Markets Inc.. “On the other hand, the Fed is concerned about inflation. The euro-dollar will have difficulty breaking $1.60.”

“Oil prices are causing inflation pressures,” said Kathy Lien, chief strategist at currency dealer DailyFX.com. “The ECB is going to remain on hold for a longer period of time. Even if the Fed will remain on hold for now, it's more likely than others to resort to rate cuts and that's hurting the dollar.”

Economists at JPM say some of the supposed strength in existing home sales could be coming from foreclosure sales, which would be counted anytime a foreclosed home is sold through a multiple listing service.

The dollar headed for a third weekly decline against the euro as the U.S. housing slump and record oil prices slow growth in the world's biggest economy.

The currency also dropped versus the yen and traded near the weakest level in a month versus the Swiss franc as an industry report showed U.S. home sales fell.

The dollar fell 14% against the euro in the past 12 months as the U.S. central bank slashed its benchmark interest rate to 2%, from 5.25% in September. The European Central Bank has kept its target rate at 4%.

U.S. home resales declined 1% to a 4.89 million annual rate in April, the National Association of Realtors said today. The median estimate in a survey was for a drop of 1.6%.

Futures on the Chicago Board of Trade indicate a 40% chance the Fed will increase the target rate for overnight lending between banks by a quarter-percentage point in December. There's a 92% chance policy makers will hold the rate at 2% at their next meeting on June 25.

The euro headed for its biggest weekly gain in two months against the dollar and a second weekly advance versus the yen on speculation the EU-countries that share the currency will withstand record high oil prices, lessening the need for a reduction in interest rates. The Ifo institute said its business climate index unexpectedly rose to 103.5 in May from 102.4 in the previous month.

The yen rose against most major currencies as rising oil prices hurt risk appetite. Investors buy the yen on speculation trades funded in the Japanese currency are pared when risk appetite falls.

Marcus Hettinger, global FX strategist at Credit Suisse: “In the last weeks we have seen the yen weakening in line with stronger equity markets, (but) due to high oil prices we have a bit more risk aversion coming into the market and that's positive generally for the yen across the board as a funding currency.”

EUR/USD printed high on $1.5795 before retreated to $1.9780. Offers reported earlier in the $1.5785/00.

Stocks fell Friday, ahead of a three-day holiday weekend, as investors eyed higher oil and gas prices and geared up for the existing home sales report, due shortly.
All financial markets are closed Monday for Memorial Day.
Stocks rose Thursday, halting a two-session losing streak, as oil prices took a break from the recent march higher. But oil prices resumed the upward climb on Friday and stocks turned lower in the early going.
U.S. light crude oil for July delivery rose to $133.20 a barrel. Oil hit an electronic trading record of $135.09 a barrel on Thursday.
Gap reported late Thursday higher first-quarter earnings that topped forecasts.

Ashraf Laidi, chief currency analyst at CMC Markets: “Rising inflationary pressures only serve to cloud the currency's negative fundamentals.”

European equity bourses are trading at session lows Friday, with oil and mining stocks the key laggards. Mining stocks are lower on profit-taking and reports that BHP Billiton's bid for Rio Tinto was facing increased scrutiny from the European regulators concerned about the impact on steel prices. CAC-40 is down 68pts (-1.35%), Xetra-DAX -91pts (-1.29%) and FTSE-100 is down 52pts (-0.84%).

Tomoko Fujii, senior currency strategist at Bank of America - "There is no fresh incentive to drive the currency market except for the housing data in the U.S. There is no sign yet of a bottoming out in the housing sector which may weaken the dollar."

But investors looked ready to pull back Friday as crude futures rebounded. A barrel of light sweet crude rose $1.44 to $132.25 a barrel in electronic trading.
Trading is also likely to be light ahead of the holiday weekend, which would add to market volatility. U.S. markets will be closed Monday for Memorial Day.
The only economic report on tap is a reading on April existing home sales, due out at 10 a.m. ET.
Economists surveyed by Briefing.com forecast that sales fell to an an annual pace of 4.85 million from 4.93 million, which would once again mark a record low for that closely watched reading.
In corporate news, British oilfield services firm Expro International Group said Friday that it has received a $3.36 billion offer from U.S. rival Halliburton, which would top an already agreed to $3.16 billion bid from a consortium of private equity firms and investors that includes Goldman Sachs.
Yahoo announced late Thursday it has delayed its annual meeting originally set for July 3 to sometime at the end of that month. The Internet firm is facing a proxy fight over its board of directors with investor Carl Icahn, who is angry at the firm for shunning an unsolicited takeover offer from Microsoft.
Clothing retailer The Gap posted sharply higher earnings that topped both its guidance and analysts forecasts, despite missing sales targets once again. Still the improvement in the bottom line lifted shares 2.5% in after-hours trading.
Workers at U.S. auto parts maker American Axle & Manufacturing Holdings (AXL) are set to return to work next week after 78% voted in favor a new four-year deal that contains wage concessions. The nearly three-week strike had crippled production of the large SUVs and and pickup trucks at General Motors, its major customer.
UAL Corp. unit United Airlines and US Airlines Group, which last fall both won federal approval to begin highly coveted routes to China, are postponing the launch of the new services because of high fuel costs, the airlines announced late Thursday.

The dollar headed for a third weekly decline against the euro as the U.S. housing slump and record oil prices slow growth in the world's biggest economy.
The currency also declined versus the yen and traded near the weakest level in a month versus the Swiss franc before an industry report today that may show U.S. home sales fell for a second month. The Chinese yuan headed for its biggest weekly gain this year on signs the country's officials are accelerating the currency's gains to curb rising prices.
The dollar fell 14 percent against the euro in the past 12 months as the U.S. central bank slashed its benchmark interest rate to 2 percent, from 5.25 percent in September. The European Central Bank has kept its benchmark rate at 4 percent. The Federal Reserve this week reduced its economic growth forecast and raised its projection for inflation.
The euro headed for its biggest weekly gain in two months against the dollar and a second weekly advance versus the yen on speculation the economies of the 15 countries that share the currency will withstand record high oil prices, lessening the need for a reduction in interest rates.


EUR/USD traded within $1.5710/50. Offers $1.5750, $1.5785/00, bids $1.5690.
GBP/USD having got support at $1.9755 rised to $1.9830. Offers $1.9840/50, $1.9880, bids $1.9750
USD/JPY fell from Y104.10 to Y103.30. Bids Y103.10/00, stronger Y102.70/60, offers Y104.40.



US data sees just existing home sales for April at 1400GMT, which are expected to slow to a 4.85 million annual rate in April.

HFE's Ian Shepherdson - "The underlying trend in claims remains upwards but the rate of increase has slowed after the rapid rise earlier this year. Over the next few months claims should climb towards the 400K mark, as companies seek to control costs in the face of persistent very soft demand. In the near-term, expect volatility over the next couple of weeks as a result of Memorial Day seasonals, and then look for claims to spike in early July. The automakers will temporarily lay off far more people than usual in their summer shutdown, as they seek to reduce inventory, so adjusted claims will jump."

Worries that supply can't keep up with global demand following the IEA report on Thursday is main factor pushing up crude oil prices. WTI Nymex crude oil is at $133.04, up $2.23.

Tackling short-term inflation may cause volatility
MPC focusing on domestic inflation factors.

-- Says you can't totally rule out recession possibility
-- Says BoE forecasts show quite a significant slowdown.

1. Q2 2008 - 29%;
2. Q3 2008 - 26%;
3. Q4 2008 - 3%;
4. Q1 2009 - 13%;
5. Q2 2009 - 3%;
6. NOT IN THIS CYCLE - 26%.

Resistance 3: Y105.50

Resistance 2: Y105.00
Resistance 1: Y104.40
Current price: Y103.51
Support 1: Y102.70

Support 2: Y102.20

Support 3: Y101.60

Comments: Dollar trades under pressure. Strong support comes at yesterday's low on Y102.70. Below losses may widen to Y102.20 and Y101.60. Resistance is around May 22 highs on Y104.40. Above there is a room for a rise to Y105.00 and May 14 high at Y105.50.

Resistance 3: Chf1.0570
Resistance 2: Chf1.0400
Resistance 1: Chf1.0350

Current price: Chf1.0280

Support 1: Chf1.0230

Support 2: Chf1.0140

Support 3: Chf1.0080

Comments: Dollar trades within a tight range. Strong support comes at yesterday's lows on Chf1.0230 with a break under will point to Chf1.0140 and then – to Chf1.0080. Resistance comes at Chf1.0350 (yesterday's high). Stronger level is around Chf1.0400 (50%) and then – near Chf1.0570 (May 19 high).

Resistance 3: $1.9960
Resistance 2: $1.9900
Resistance 1: $1.9850
Current price: $1.9794
Support 1: $1.9680
Support 2: $1.9580
Support 3: $1.9450

Comments: Cable consolidates. The nearest resistance is yesterday's highs near $1.9850, with a break above will extend the rise to $1.9900 (May 02 high) and $1.9960. Below $1.9680 correction may widen to 50% Fibo from May 19 at $1.9580/90. Below losses will extend to May 19 lows on $1.9450.

Resistance 3:$1.6020

Resistance 2: $1.5920
Resistance 1: $1.5815
Current price: $1.5724

Support 1: $1.5690
Support 2: $1.5540
Support 3: $1.5490

Comments: Euro consolidates. The nearest resistance is yesterday's high on $1.5815. Above the rise may extend to $1.5920. Main resistance is around Apr 22 highs on $1.6010. Support comes at $1.5690. Stronger level comes at 50% Fibo on $1.5540 with further losses down to $1.5490.

Manuel Oliveri, economist at UBS - "The dollar remains under pressure as the market is now contemplating a stagflationary scenario, as opposed to higher rates under more stable growth conditions."

``The Fed has a more balanced view on inflation and growth,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto, a unit of Canada's biggest bank by assets. The dollar decline has ``lost momentum.''

-Wage demands must not lead to an inflation spiral
-The ECB and IMF see inflation in 2008 rising but closer to 2% in 2009

The dollar snapped two days of declines against the euro, rallying from the lowest level in a month, as traders added to bets the Federal Reserve will raise interest rates by year-end and oil retreated.
The U.S. currency also gained versus the yen after minutes of the Fed's April meeting yesterday showed most policy makers viewed the cut in the target rate to 2 percent as ``a close call,'' indicating the central bank has gone on hold to stem inflation.
U.S. house prices fell less than expected in the first quarter. The Office of Federal Housing Enterprise Oversight said its house price purchase index declined 0.2 percent, after rising 0.3 percent the previous quarter. The median forecast in a survey of 13 economists was for a drop of 1.3 percent.
Futures on the Chicago Board of Trade show traders see a 92 percent likelihood the Fed will keep its target rate for overnight lending between banks at 2 percent on June 25, up from odds of 88 percent yesterday. Traders also see a 32 percent probability the Fed will lift the rate in September to 2.25 percent, up from a 21 percent chance yesterday.
The dollar has fallen 2 percent against the euro since May 8, after European Central Bank President Jean-Claude Trichet said inflation remains the bank's top priority. That signaled policy makers won't cut the 4 percent benchmark interest rate soon.
The pound rose to a three-week high against the dollar after a government report showed U.K. retail sales declined less than forecast in April.

Change % Change Last
Nikkei 225 +52.16 +0.4% 13,978.46
Topix +9.58 +0.7% 1,379.67
FTSE 100 -16.50 -0.27% 6,181.60
CAC 40 +1.19 +0.02% 5,028.74
Xetra Dax +29.50 +0.42% 7,070.33
DOW +24.43 +0.19% 12,625.62
NASDAQ +16.31 +0.67% 2,464.58
S&P 500 +3.64 +0.26% 1,394.35
10yr Note +0.9900 +0.259% 3.921%
NYMEX Crude Oil -2.36 -1.77% 130.81
Gold -10.30 -1.11% 918.30

Japan's stocks rose, reversing early losses, as refiners gained on record crude prices and exporters rebounded on the weakening yen.
Nippon Oil jumped 5.3%, the highest since Jan. 9, while Idemitsu leapt 6.5%. AOC Holdings Inc., whose shareholders include Saudi Arabia, surged 7%. Crude oil, which has doubled in the past 12 months, surged to as much as $135.04 a barrel today, boosting the value of refiners' inventories.
Mazda, the world's only mass producer of rotary engines, climbed 2.9 percent, after falling as much as 4.2%. Funai Electric Co., which gets 65 percent of its overseas sales from North America, advanced 3.7% in Osaka trading, the sharpest jump since May 8.Sanyo, which was bailed by banks including Sumitomo Mitsui Financial Group Inc., slumped 4.9%, the sharpest drop since April 9, and was the worst performer on the Nikkei. The Osaka-based company forecast operating profit that fell short of analysts' estimates by more than a quarter.
Sumitomo Mitsui, Japan's third-biggest publicly traded bank, gained 4 percent, after losing as much as 2.3%. The stock was the biggest contributor to the Topix's rebound.

European stocks advanced, rebounding from two days of losses, as rising telephone shares overshadowed concern record oil prices will curb corporate profits.
Cable & Wireless rose 2.7%. The company may break itself up, sell some businesses or borrow money to return capital to shareholders, Finance Director Tony Rice told reporters on a conference call today.
Telecom Italia advanced 4.6%. Deutsche Bank increased its projections for sales and profit, citing a regulatory decision on termination rates.
Air France slumped 10%, the biggest fall among shares on the Stoxx 600. The airline posted a fiscal fourth-quarter loss of 49 million euros ($77 million) after an early Easter holiday restrained business travel. BHP Billiton Ltd. led a rally in raw-material producers after Sanford C. Bernstein & Co. raised its share-price estimate for the world's biggest mining company by 25% and maintained its ``outperform'' recommendation. BHP shares rose 2.1%. Xstrata Plc, the world's largest exporter of coal used by power stations, added 2.1%.

US stocks closed positive Thursday afternoon, as oil prices took a break from the recent march higher, allowing investors to scoop up select stocks.
International Business Machines Corp. and JPMorgan Chase & Co. led gains in the Dow Jones Industrial Average after the government said first-time unemployment claims decreased by 9,000 last week. Limited Brands Inc. rallied after the operator of the Victoria's Secret lingerie chain posted earnings that topped analysts' estimates. Eight of 10 industry groups in the Standard & Poor's 500 Index rose as the benchmark for U.S. equities rebounded from its biggest two-day tumble since March.
Limited Brands climbed 2.3%. Profit excluding items was 11 cents a share, 3 cents above the average estimate of analysts surveyed by Bloomberg. The company also forecast higher annual earnings than it previously projected.
Utility shares gained after NRG Energy Inc. made an unsolicited offer to buy Calpine Corp. for $9.6 billion in stock. NRG, the second-biggest power producer in Texas, offered 0.534 share for every Calpine share, or 6.7% above yesterday's closing prices, as it seeks to become the largest independent power company in the U.S. NRG lost 4%. Calpine jumped 9.4%.
Dynegy Inc., the owner of power plants in 12 U.S. states, gained for the eight day, rising 2.6 percent to $9.83.
Ford Motor Company announced it will lower production volume of large trucks and sport-utility vehicles, while shifting more focus toward models in-line with consumers' preferences. Ford also trimmed its profit outlook.Swiss banking giant UBS announced plans to raise some $15 billion through a rights offering to existing shareholders. Shares available in the offering will be priced at a 31% discount to yesterday's closing price. Additionally, UBS finalized the sale of $15 billion of subprime and Alt-A mortgage assets to investment management outfit BlackRock (BLK 200.32, -0.46).

The dollar headed for a third weekly decline against the euro as the U.S. housing slump and record oil prices slow growth in the world's biggest economy.

The currency also traded near the weakest level in a month versus the Swiss franc before an industry report today that may show U.S. home sales fell for a second month. The U.S. home resales declined 1.6 percent to a 4.85 million annual rate in April, according to the median estimate in a survey.

The euro headed for its biggest weekly gain in two months against the dollar and a second weekly advance versus the yen on speculation the economies of the 15 countries that share the currency will withstand record high oil prices, lessening the need for a reduction in interest rates.

Japan's benchmark stock indices ended Friday's session narrowly mixed, slipping from session highs late in the day. The benchmark Nikkei 225 was 33.74 points, or 0.24%, higher at 14012.20. The broader-based TOPIX was 2.98 points lower at 1376.69.

Resistance 3: Y105.50Resistance 2: Y105.00
Resistance 1: Y104.40
Current price: Y104.01
Support 1: Y102.70

Support 2: Y102.20

Support 3: Y101.60

Comments: Dollar trades under pressure. Strong support comes at yesterday's low on Y102.70. Below losses may widen to Y102.20 and Y101.60. Resistance is around May 22 highs on Y104.40. Above there is a room for a rise to Y105.00 and May 14 high at Y105.50.

Resistance 3: Chf1.0570
Resistance 2: Chf1.0400
Resistance 1: Chf1.0350Current price: Chf1.0313

Support 1: Chf1.0230Support 2: Chf1.0140

Support 3: Chf1.0080

Comments: Dollar trades within a tight range. Strong support comes at yesterday's lows on Chf1.0230 with a break under will point to Chf1.0140 and then – to Chf1.0080. Resistance comes at Chf1.0350 (yesterday's high). Stronger level is around Chf1.0400 (50%) and then – near Chf1.0570 (May 19 high).

Resistance 3: $1.9960
Resistance 2: $1.9900
Resistance 1: $1.9850

Current price: $1.9788
Support 1: $1.9680
Support 2: $1.9580
Support 3: $1.9450Comments: Cable consolidates. The nearest resistance is yesterday's highs near $1.9850, with a break above will extend the rise to $1.9900 (May 02 high) and $1.9960. Below $1.9680 correction may widen to 50% Fibo from May 19 at $1.9580/90. Below losses will extend to May 19 lows on $1.9450.

Resistance 3:$1.6020
Resistance 2: $1.5920
Resistance 1: $1.5815
Current price: $1.5735

Support 1: $1.5690
Support 2: $1.5540
Support 3: $1.5490

Comments: Euro consolidates. The nearest resistance is yesterday's high on $1.5815. Above the rise may extend to $1.5920. Main resistance is around Apr 22 highs on $1.6010. Support comes at $1.5690. Stronger level comes at 50% Fibo on $1.5540 with further losses down to $1.5490.

- Global prices have upside risks
- Consumer inflation expectations rising in Japan
- Must carefully watch Japan capex plans
- One board member said Japan exports may slow
- Must watch weaker global econ impact on output
- Income generating capacity unlikely to show big rise
- Some members believe consumer spending may weaken in US

High Low Close
EUR/USD 1.5813 1.5692 1.5722
USD/JPY 104.36 102.72 104.11
GBP/USD 1.9848 1.9682 1.9796
USD/CHF 1.0351 1.0233 1.0307

EUR/JPY 163.83 162.23 163.71
EUR/GBP 0.8010 0.7923 0.7939
GBP/JPY 206.57 202.71 206.10
GBP/CHF 2.0493 2.0182 2.0407

Change % Change Last
Nikkei 225 +52.16 +0.4% 13,978.46
Topix +9.58 +0.7% 1,379.67
FTSE 100 -16.50 -0.27% 6,181.60
CAC 40 +1.19 +0.02% 5,028.74
Xetra Dax +29.50 +0.42% 7,070.33 DOW +24.43 +0.19% 12,625.62
NASDAQ +16.31 +0.67% 2,464.58
S&P 500 +3.64 +0.26% 1,394.35
10yr Note +0.9900 +0.259% 3.921%
NYMEX Crude Oil -2.36 -1.77% 130.81
Gold -10.30 -1.11% 918.30

06:45 FR Consumer spending (April) 0.6% -1.7%
06:45 FR Consumer spending (April) Y/Y 2.1% -1.2%
07:00 FR PMI (May) flash 51.0 51.1
07:00 FR PMI services (May) flash 53.0 52.8
07:30 DE PMI (May) flash 53.2 53.6
07:30 DE PMI services (May) flash 54.0 54.9
08:00 E15 PMI (May) flash 50.3 50.7
08:30 UK GDP (Q1) revised 0.4% 0.4%
08:30 UK GDP (Q1) revised Y/Y 2.5% 2.5%
14:00 US Existing home sales (April), mln 4.85 4.93