As the name depicts, Euro is the official currency of the European Union. 15 member states of the organization are currently using Euro for trade. These states include France, Germany, Italy, Greece, Austria, Finland, Cyprus, Belgium, Ireland, Portugal, the Netherlands, Spain and Slovenia. Euro is also used in five other countries with formal agreements which are Monaco, San Marino, Vatican City, Mayotte and Saint Pierre and Miquelon. Without any type of agreements, Euro is also under circulation in six other countries including Andorra, Kosovo, Montenegro, Akrotiri and Dhekelia.

European Union introduced Euro in 2002. At present, Euro is one of the strongest contenders against the US Dollar. The European Standard Bank is the principal bank that makes a decision on the monetary policies like rise in interest rates, keeping inflation checked, etc. Keeping in view its past record (when despite the slow economic growth it kept the interest rates steady) we can say that Euro is less likely to face adjustments in exchange rate.

The influences of Euro are many. It has made many lives simpler by eliminating the currency exchange phenomenon from their daily lives, thus enabling easy payments and allowing to compare prices in a convenient way. At the same time, the negative aspects of the single currency include higher prices and more importantly, the lack of an autonomous economic policy.

Euro is mostly traded in pair with US Dollar. It means that when the US Dollar rises against the Euro, the Euro will fall. For example, if inflation is high and the Federal Reserve lifts the interest rates, this will result in upward trend of the US Dollar and thus Euro will slightly fall. Similarly, as the majority of world oil trade is done in US Dollars, so when the oil prices move higher, the Dollar also strengthens, thus affecting the Euro to decline. Euro is largely dependent on the manufacturing industry of the countries included in Euro Zone. Better production in these countries would increase the strength of Euro.

The US Dollar is the most common currency that is commonly quoted in trade across the globe. It is one of the most popular currencies in the world. However, there are several other currencies that are actually not affected by the US Dollar movements in the forex market. These currencies may not be as popular as the US Dollar; nevertheless, they hold their own importance and are backed by several factors in their own countries that make them hold their ground strongly, in case of Dollar fluctuations.

The Euro:

European Union decided to have its own currency in 1999 and introduced it in the forms of coins and notes by the year 2002. Since then, the Euro has been one of the strongest contenders against the US Dollar. The EU consists of Austria, Belgium, Greece, Germany, France, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. Socialist countries, which are also the largest countries of EU, hold the reigns of government budget deficits. The ECB or the European Central Bank is the lead bank that decides the monetary policies and aims to keep a check on inflation rather than keeping a check on economic contraction. The ECB has kept steady interest rates in past when there had been an economic slow down. Thus interest rates or adjustments in Euro exchange rates are less frequent.

The Japanese Yen:

Japan is a net importer of goods. However, the US and Europe are its major customer for its machinery and other production. Japan especially needs crude oil to keep its economic machinery running like clockwork. Bank of Japan faced one of the major deflationary crises in 1990s when it was compelled to switch to zero interest policy. At this time, Yen experienced the carry trade – when an entity buys a currency at zero interest rate and parks it in another account with high interest rates. In 1990s, the US treasury bonds and German bunds witnessed many such transactions. This means that the Japanese Yen shall always trade lower against the Euro and US Dollar which gives Yen/Euro trade as a viable pair. The only contention offered to this trade is the Chinese Yuan. China is one of the biggest competitors of Japan. Since china also artificially floats its currency, it may weaken the Yen’s value eventually.

The British Pound:

Britain has oil production in North Sea which can influence its economy. This means that Britain has energy reserves and thus, whenever the oil prices have gone high in past, so has the British pound. However, Britain has been experiencing a net increase in its demand for natural gas which has made it as a net importer of natural gas. This means that if there are any outrageous price spikes in the commodity, it would lead Britain to economic exposure. If oil prices start to head north rapidly, Bank of England may need to keep inflation in check and consumer spending may be severely affected. The British pound is also susceptible to strengthening of European currency. Thus, trading Euro with Pound can be quite a liquid trading relationship.

The Canadian Dollar

It is also referred to as "the Loonie" as it has the bird, huard, on its coin. Loony is the French for huard. Bank of Canada is country’s central bank that dictated the monetary policies for the nation. It holds eight meetings in a year to decide upon the interest rates policy. Canada is also world’s second largest reserve for crude oil with more than 175 billion barrels of reserves. The US is its main customer and if there is an increase in the oil prices, they would further strengthen the Canadian Dollar.

The Swiss Franc

It is commonly known as the "the Swissy". It is one currency that is capable of outperforming the Euro if there is dissention between the EU members. It is backed by gold thus is considered one of the safest currencies. Inflation, economic contraction, political stability and excessive economic growth are some of the factors that affect performance of the Swissy.

Retail Sales rebound on US consumer strength.U.S. Dollar Trading (USD) the much anticipated May Retail Sales didn't disappoint coming in much stronger than anticipated at 1.0% vs. 0.5%. Combined with upward revisions in March and April the numbers paint a resilient picture of the US consumer. The Government stimulus package released in late April has filtered through leaving the US Federal Reserve the possibility of a rate hike later in the year. Driving up inflation fears, US import prices for May rose 2.3% on soaring energy costs. Weighing on the Dollar though was the continued weakness in US initial Jobless claims coming in at 384K up 25K from last week. In the US share markets, the NASDAQ was up 10 points (0.4%) and the Dow Jones was up 57 points (0.57%). Crude Oil closed up $0.36 ending the New York session at $136.74 per barrel. Looking ahead we have the May CPI expected to quicken to 0.5% from Aprils 0.2%. June Michigan Consumer Confidence is expected to fall further to 50.5 from 51.1 in May.The Euro (EUR) continued in a downtrend bowing to USD strength but still performing well against other currencies. Solid April Industrial Production of 0.9% and strong reported sovereign bids helped to rebound off lows. Overall the EUR/USD traded with a low of 1.5379 and a high of 1.5566 before closing the day at 1.5420 in the New York session. Looking ahead, German CPI for May forecasted at 0.6%.

The Japanese Yen (JPY) the USD/JPY traded through 108 for first time since February as US interest rates continue to be forecasted higher. Strong US Retail sales broke down option barriers at 107.85 and 108 but reported strong barriers at 108.10 and 108.30 are expected to provide stiff resistance along with exporters taking advantage of the higher levels. Overall the USDJPY traded with a low of 106.91 and a high of 108.08 before closing the day around 107.91 in the New York session.

The Sterling (GBP) traded to its lowest level since May 15th with the Dollar dictating direction. The Bank of England Bulletin showed public expectations of future inflation running way above current projections and action may be needed by the BoE. Overall the GBP/USD traded with a low of 1.9435 and a high of 1.9644 before closing the day at 1.9473 in the New York session.

The Australian Dollar (AUD) was sold heavily after May Unemployment Data came in very weak. Unemployment Change -19.7K vs. 13.5K expected and Unemployment Rate jumped to 4.3% vs. 4.2% forecast. The data resulted in trimming of interest rate expectations and growth expectations. In the US session the large drop in gold took the glimmer off the recent surging Aussie. Overall the AUD/USD traded with a low of .9329 and a high .9488 before closing the day at .9343. Looking Ahead, RBA Stevens speaks today on the state of the economy.

Gold (XAU) fell steeply through supports as US data came in strong and the USD surged. Overall trading with a low of $857 and high of $882 ending the New York session at $868 an ounce.

Technical Commentary

• Euro - 1.5455

  Initial support at 1.5380 (Jun 12 low) followed by 1.5366 (Jun 5 low). Initial resistance is now located 1.5587 (Jun 12 High) at followed by 1.5657 (Jun 10 high).

• Yen - 107.75

  Initial support is located at 106.8 (June 12 low) followed by 106.24 (Jun 10 low). Initial resistance is now at 108.08 (Jun 11 high) followed by 108.61 (Feb 14 high).

• Pound - 1.9485

  Initial support at 1.9435 (Jun 12 low) followed by 1.9363 (May 14 low). Initial resistance is now at 1.9645 (Jun 12 high) followed by1.9683 (61.8% retracement of the 1.9801 to 1.9493 decline)

• Australian Dollar - 0.9380

  Initial support at 0.9304 (50% retracement of the .8953 to 0.9655 advance) followed by 0.9291 (May 15 low). Initial resistance is now at 0.9527 (Jun 10 high) followed by 0.9648 (Jun 9 high).

• Gold - 872

  Initial support at 857.65 (Jun 12 low) followed by 850 (Psychological Number). Initial resistance is now at 883 (June 11 high) followed by 895 (Jun 10 high).

The falling dollar continues to raise eyebrows in the world financial market and now even more than that. Members of the 7 industrialized nations are now seriously warning against strong foreign exchange transactions. They believe this could create more financial instability.

This weeks financial data in regards to the dollar do not look good, in fact it appears that the U.S. is falling into a recession, and the dollar continues to fall against the Japanese yen and the euro.

The falling dollar, has also created other problems in the market such as the rise in prices for commodities such as oil, wheat and other items, which means that consumers just don’t have the money to spend. This will cause banks to rethink their interest rates and possibly lower them, and will keep some countries from basing their economy on the U.S. dollar.

At this rate inflation will soon be both a humanitarian and political problem too. Rising food costs because of rising commodities will seriously affect the years of work in trying to reduce poverty worldwide. Consumers are now worrying about filling their gas tanks, but others are now worried about filling their stomachs.

For a long time the 7 industrialized nations have warned that a countries economy should be based on the countries economics and not on other currencies, such as the dollar, but now they are emphasizing the principle even more. In fact this is a probably the strongest concert the group of 7 has expressed since 2000.

For now the financial world is only on alert, and there is nothing being done as yet to back up the dollar.

Some financial experts believe that any recovery that the dollar makes will only be a short term one until investors believe that the U.S. economy is on the rise again. Others say that although there is sure to be bad financial news this week, the dollar should slowly come back. It is believed that the U.S. Federal Reserve Board has almost finished the interest rate cutting period, and the European Central Bank will probably reduce rates before the end years, and that things will probably not get worse for the U.S. economy. This means that the U.S. dollar should recover on its own without any intervention.

Some experts believe that the Euro is replacing the dollar as a world currency, but many other financial experts believe that this is just not so. They believe the rise of the Euro against the dollar has more to do with financial money flows, than with any real economic fundamentals for replacing the dollar with the euro.

Specifically, financial experts at Morgan Stanley do not believe that the European currency is replacing the U.S. dollar as the world’s reserve currency. Luca Bindelli and Stephen Jen, two top economists at Morgan Stanly believe that the reason for the stronger euro have more to do with money flows and not with any real economical fundamentals.

These economists state that the Euro has been overvalued, due to diversification from both home and world investors. Home investors seem to be diversifying into other countries, but remaining within their euro zone, and investors from other countries, seem to have their sight on UK investments.

Bindelli and Jen reiterated their opinion when they stated: “One perverse implication is that, when the euro zone economies finally achieve economic convergence, the benefits of diversifying within the zone should decline and European [investment funds] will need to diversify more outside the euro zone than within the zone.” Their belief is that when this happens, then currency markets will be changing within the next few years.

In the U.S. financial experts and managers that handle insurance companies, pension funds, and mutual funds (collectively about $22 trillion U.S. dollars) are currently steering toward diversification outside the U.S. dollar. As proof of this trend, Morgan Stanly has seen growth in their non U.S equity by about 23%, and this is a 10% growth rate in the last few years. But this growth is not necessarily due to a lack of faith in the dollar, but more the ability to take advantage of the availability of world finance and globalisation.

The verdict stands then, that the euros’ reason for standing so high, is most likely due to capital flows, and no real economic fundamentals. "Only seven years ago the euro was ridiculed by investors,” say Bindelli and Jen, and for world economic fundamentals to change so drastically in such a short time is very unlikely.
Still, the facts are that the euro has risen 30% above the U.S. dollar in only two years time.

The Euro has risen to an all-time high against the U.S. Dollar after data released on Friday showed a slowdown in the pace of growth of the U.S economy in the first quarter. ''The dollar has been pressurised significantly by softer US growth, concerns over the housing market, and the increased possibility that the Federal Reserve will cut interest rates later this year,'' said Howard Archer at Global Insight.

The Euro's strength is credited with inflation data released from Germany and also robust business confidence. ''The German economy is obviously coping well with the current Euro/U.S Dollar exchange rate,'' said Michael Glos, the German economics minister.''If there were further strong gains it would mean some risks but currently, and this can be seen in the performance of exports, it’s bearable.''

The Euro has also reached record highs against the Japanese Yen after disappointing economic data was released. Despite this, the Yen was able to hold its ground as the Bank of Japan kept its interest rates unchanged at 0.5 percent.

In forex-trading, the Euro hit 1.3682 U.S. Dollars, exceeding past its previous high of 1.3667 U.S. Dollars during 2004. Against the Japanese Yen, it reached 162.91 Yen from a previous high of 162.53 Yen.

The Euro reached a two-year high against the U.S. Dollar on Friday as investors made comparisons for the likelihood of interest rate rises in the Eurozone with interest rate cuts in the U.S. The Eurozone is currently experiencing strong growth and inflationary pressures and may prompt the European Central Bank to increase interest rates during June. ``The dollar is fairly fragile right now,'' said Nick Bennenbroek, head of currency strategy for Wells Fargo Bank in New York. ``The market is getting more conviction that the ECB will continue to raise rates. It is only a matter of time for the Euro to test the all-time high.''

In forex-trading, the U.S. Dollar fell to 1.3590 against the Euro, reaching a three-year low of 1.3638. The U.S. Dollar has also declined against the Pound and the Japanese Yen, trading at lows of 2.0133 per Pound and a 118.68 Yen trade per Dollar, a decline of 0.49 percent. The Australian Dollar is also traded at a 16 year high of 83.92 U.S. cents.

The Euro regained against the U.S. Dollar as stronger than expected data of growth figures were released in the U.S. The U.S. Commerce Department reported that the economy finally regained a faster than expected 3.5 percent growth in the last quarter of 2006. Analysts previously predicted only a 3 percent increase in growth rates. U.S. labor costs increased slightly by rising 0.8 percent in the last quarter of 2006 and the government price index, excluding food and energy went up 2.1 percent, slowing from 2.2 in the previous qaurter. U.S. data is a major factor into the U.S. Federal Reserve's decision making regarding interest rates. Current data has indicated positive movement in the U.S. economy.

In the foreign exchange, the Euro was worth 1.2966 U.S. Dollars compared with 1.2961 U.S. Dollars in the previous day's trading in New York. The Pound Sterling rose to 1.9526 U.S. Dollars from the previous trade of 1.9615 U.S. Dollars. Against the Japanese Yen, The U.S. Dollar fell to 121.54 Yen compared to the previous trade of 121.62 Yen.

The Japanese Yen fell to a record low level against the Euro and a two-month low against the Dollar on Wednesday. The Euro has shown impressive record highs against the Japanese Yen as investors hope for a faster decision for high interest rates in the Euro zone rather than Japan. "The euro zone has stronger inflation so there is not as compelling a case for the BOJ (Bank of Japan) to hike rates as there is for the ECB (European Central Bank)," said Daragh Maher, currency strategist at Calyon. Traders expect the European Central Bank (ECB) to increase interest rates by a quarter of a percent to 3.75. The Euro has a yield advantage against the Japanese Yen, with Japanese interest rates rising by just 0.25 percent.

In forex trading, the Euro reached a record level at 158.02 Japanese Yen which is its fourth consecutive high this week. The Australian Dollar also experienced recent highs against the Japanese Yen .

The Euro strengthened to a record high trading against the Japanese Yen and close to a seven-year high against the Swiss Franc as demand for bigger yields are shown at the beginning of the new year. The Manufacturing sector in the euro zone showed slightly weaker data during December. Despite the recent slowdown, the Euro has set the tone for 2007 amidst a weakening US. currency. ''The Swiss franc and the yen are still fairly weak versus the euro, indicating that risk appetite in the market is high and carry trades are very much in vogue,'' said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt.

In the foreign exchange, the Euro reached its highest level against the Japanese Yen 157.85. Against the Swiss Franc, it traded at a seven year high of 1.6112 Swiss Francs and also climbed 0.5 percent against the Dollar at 1.3563 US. Dollars. Other recent highs in forex trading include the Australian Dollar's nine-year high against the Yen, reaching above 94.50 Yen as Australia prepares for another possible rate rise.