EUROPE FOREX UPDATE - USD

The US dollar declined overnight with USDJPY trading from 117.12 to a low of 116.36 and EURUSD rising from 1.2840 to 1.2868. USDJPY and EURJPY came off following surprisingly strong capital expenditure (capex) numbers out of Japan.

In the news, the French Trade Minister showed concern on current high levels in the EUR, particularly against the JPY. EURJPY declined to a low of 149.71 from 150.36.

Meanwhile, in the US, manufacturing ISM index for August fell to 54.5 from 54.7 in August, which was a modest slowing but not alarming in anyway. Of greater concern was the slump in the pending home sales index for July, which fell by 7% m/m and points to further weakness in the housing sector.

For now, however, consumer confidence seems to hold up well, with the University of Michigan Confidence Index surprising markets on Friday.

Since the US Market is closed, the market is likely to focus once again on external imbalances with Congress returning from summer recess and Treasury Secretary Paulson travelling to Vietnam for the APEC finance ministers' meeting. In this environment, we expect the USD to remain under pressure and EURUSD seems poised to test its highs for the year near 1.30 in the near term.