The US dollar remained on the defensive against European currencies, though EURUSD held below the 1.3787 high. Against the yen, the USD strengthened to a high of 122.53 as key carry trades, e.g., NZDJPY and AUDJPY rebounded from overnight lows. US equity and credit markets stabilized, while crude prices moderated slightly.
The near-term outlook for the greenback remained quite negative due to uncertainty regarding the deteriorating subprime mortgage industry, and its potential to spark a credit crunch and cause investors to flee risky trades.
The Bank of Japan will release the results of its policy meeting some time around midday. The Bank is widely expected to leave policy unchanged, but, with markets pricing roughly 66% odds of a hike in August, the press conference at 2:30 GMT will be watched for signs that the BOJ is moving towards tightening.
CAD will out perform USD in the months ahead with market pricing in another rate hike by the end of the year. The underlying trend remains intact from a MT/LT perspective. Look to sell any significant bounce around 1.0650/80 for a target of 1.0400, stop at 1.0760.
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