The Dollar Gained vs. the Yen as Carry Trade Renewed

Forex outlook:

The dollar rose against the yen for a second straight day on Thursday as traders took advantage of a rebound in U.S. stock markets to adjust positions before Friday's U.S. payrolls report. “The trade this week has been simple: if stocks rise, you short the yen, if they fall, you buy back yen," said Gregory Salvaggio, a senior currency trader at empus Consulting in Washington. "But the payrolls report tomorrow may break this pattern, making the forex market less dependent on stocks to asses risk."

Sterling and the euro were higher even as the Bank of England and the European Central Bank left rates on hold at 5.75 percent and 4 percent, respectively.ECB president Jean-Claude Trichet said after the bank's policy meeting that "strong vigilance" was needed to stem inflation risks, signaling a possible September rate hike.

The ECB's Trichet weighed in on the recent volatility in financial markets. He said the central bank was closely monitoring shifts in sentiment and the price movements that were part of a "normalization of pricing risk”. David Powell, senior currency strategist at IDEAglobal in New York, said Trichet did not seem to express concern about the current state of markets. "To me, his remarks on 'normalization of risk' implies that the current volatility will not affect the ECB's tightening campaign," Powell said.

The dollar traded around the levels of 1.3695 vs. the Euro, 119.15 against the yen and 2.0360vs. the sterling at 18:57 (GMT)

Crude Oil: U.S. crude oil futures kept strong gains midday on Thursday, as traders latched on to early remarks within OPEC that there was no need for the producers group to raise production at its September meeting, market sources said. Prices remained above $77, after falling more than 2 percent on Wednesday as traders booked profits following a rally to a record intraday price of $78.77 on Wednesday.
The August contract on the crude oil traded around the levels of 76.900$ a barrel at 19:00 (GMT). ``Crude demand is ramping up as refiners come back with a vengeance,'' said Antoine Halff, a vice president and head of energy research at Fimat USA Inc. in New York. ``The global tightness in crude-oil supplies is finally spreading to the U.S. We are set for further draws in the weeks ahead.'

Gold: The precious metal rose in New York as the dollar weakened, boosting the appeal of precious metals as alternative investments. ``You have to be positive on gold because of what's happening to the dollar,'' said Tom Hartmann, a broker for Altavest Worldwide Trading Inc. in Mission Viejo, California. Some tradres belive in the bullish direction of the gold based on the asumption that Oil has yet to get priced back into the gold market. The September future contract on the gold traded around the levels of 667.4$ an ounce at 19:15 (GMT).

Pool position: