FOREX. Monday results. [E]

American currency continued to raise on Monday. Main reason was an escalation of violence in the Middle East. Growth of the dollar amplified after important technical levels were passed, particularly Y116.50 against the yen and $1.2620 versus the euro. Trigger of bids for American currency near this levels was additional catalyst for dollar rise.

Fed report showed industrial production in June unexpectedly increased 0.8%, after strengthen 0.1% in May and capacity utilization reached the most for 6 years and made 82.4%. As a result speculations on Fed can continue interest rate gain strengthened.

Additional factor of USD strengthen may be expectations of PPI and CPI this week. It able to testify the growth of U.S. inflation and can be a reason of Fed additional measures for monetary policy tightening. Now futures market is pricing 59% chance Fed rate increase August 8 at 25 b.p. to 5.5%.

EUR/USD after consolidation in a range $1.2620/45 fell to $1.2520/30. Bids placed here caused recoil to $1.2550. However demand for USD led to next rate’s slump. As a result low $1.2508 was established. The euro stabilized in a range of session lows.

GBP/USD after consolidation in a range $1.8350/70 started to drop. As a result rate left the range of last week and made a fresh low $1.8180. Bids placed here stopped rate’s slump. But it didn’t lead to significant rebound. The pound stays in a range $1.8180/85.

USD/JPY rose to Y117.10/20 from Y115.26. The rate consolidated near highs to day’s close.

Meanwhile, EUR decline can be limited, as EU inflation remains above ECB target level 2%. ECB President Jean-Claude Trichet on July 6 said the bank will “exercise
strong vigilance" on inflation, signaling the bank may lift
borrowing costs next month. Investors believe ECB main lending rate will
climb to 3.25% by the end of the year.
Today report may signal investor confidence in the Germany from ZEW dropped
to the lowest in more than a year in July, spurring concern that higher
borrowing costs are hurting economy growth