Tomorrow's U.S. Non-Farm Payrolls to Dictate USD Direction

The Dollar gained considerably ground in yesterday's trading, whilst the price of Crude Oil plummeted. The question today is can this pattern be extended into end-of-week trading? The answer to this question will be determined by a number of factors, such as the U.S. Unemployment Claims release at 13:30 GMT, U.S. Federal Reserve Chairman Ben Bernanke's speech at 12:45 GMT, and investors weighing in on the possible results of the U.S. Non-Farm Payrolls data release tomorrow.

USD - Fed Chairman Bernanke's Speech to Drive Dollar Volatility Today

The Dollar may rise for a second day versus the EUR on speculation of economic recovery after new data gave a mixed outlook for the services and manufacturing sectors of the U.S. economy. The USD advanced versus 10 of the 16 most-traded currencies yesterday after reports showed U.S. companies cut more jobs last month than economists forecast.

The markets are also being calmed after officials from China to Japan, India, Russia and South Korea announced that the U.S. Dollar remains the world's main reserve currency, economists said. The greenback had advanced earlier after news reports signaled major Asian central banks are prepared to keep buying U.S. Treasuries. The U.S Dollar rose significantly to $1.4168 per EUR, from $1.4307 yesterday. The U.S. currency may strengthen to as high as $1.4050 vs. the EUR today.

In his appearance on Wednesday before the House of Representatives Budget Committee, Federal Reserve Chairman Ben Bernanke said rising U.S. debt was contributing to a spike in longer-term Interest Rates and now was the time to start working on reining in deficits. Yet the Dollar's gains have been pretty moderate considering how much it has fallen recently. As Bernanke gave no clue as to whether the U.S. Federal Reserve would step up its purchases of government debt or mortgage-backed securities, this is likely to lead to high volatility for the Dollar in today's trading.

As for today, Ben Bernanke's speech about the state of the U.S. economy at 12:45 GMT is set to drive USD volatility. Additionally, the anticipated results of tomorrow's U.S. Non-Farm Payrolls are set to play a key role in the behavior of forex traders today.

EUR - ECB Interest Rate Decision in the Spotlight

The EUR rose to a 7 month high against the Japanese Yen on Wednesday. However, the EUR/JPY went bearish in late trading on Wednesday to close lower at 136.22 Yen per EUR. Against the U.S Dollar the EUR also weakened after Finland's Finance Minister said EU countries need bank stress tests to regain financial market trust and jolt them out of the worldwide recession.

The EUR slipped against the Dollar to the$1.4168 level yesterday, down from $1.4307, as currency traders shrugged off fresh economic data for the 16-nation Euro-Zone. The European currency declined after the European Union's Statistics Office reported Gross Domestic Product (GDP) in the Euro-Zone fell 2.5% in the 1st quarter. It was the largest economic contraction since the data was first compiled in 1995. The British Pound depreciated as much as 2% against the USD to $1.6263, the biggest intraday drop since March 9, when it tumbled 2.5%.

Meanwhile traders are braced for decisions on Interest Rates from the European Central Bank (ECB) and the Bank of England (BoE) today. The European Central Bank is expected to keep its target lending rate at 1% when it announces its decision at 11:45 GMT. The Bank of England is expected to keep its benchmark rate at 0.5% at its announcement at 11:00 GMT.

JPY - Yen Hits 7 Month Low vs. EUR

The Japanese Yen weakened against the EUR and the Dollar after Fitch Ratings reiterated its confidence in the U.S. and U.K.'s AAA ratings, damping demand for Japan's currency as a refuge from the global financial crisis. However, the JPY recovered in late trading to finish up by 60 pips vs. the EUR to close at 136.22. The JPY dropped to 96.15 per Dollar from 95.63.

Investors are now wondering if the JPY will continue to gain ground against the EUR and Pound in today's trading. It is important to take into account that this may only continue if the leading economies led by the U.S. publish predominantly positive economic data today. The result of this would help reduce demand for the safe-haven JPY. In the meantime traders are advised to open up their JPY trades ahead of the Euro-Zone and British Interest Rate decisions in the coming hours.

Crude Oil - Crude Tumbles 3% on U.S. Inventory Data

Crude Oil prices declined Wednesday by about 3.5%, to $66.15 a barrel, pulling back after government data showed an unexpected increase in inventories last week. The Energy Information Administration reported that U.S. commercial Crude Inventories for the week ending May 29 rose to 366 million barrels, up 2.9 million barrels. Crude Oil was also pushed lower by a bullish U.S Dollar.

Despite Wednesday's weakness, Oil prices have surged 60% over the last 3 months. Analysts state that Oil has surged in recent weeks on speculation and a weak Dollar, not on actual demand. This was apparently not enough to hold the recent bullish Oil prices, as yesterday's inventory report underscores this.

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