In overnight trading, the dollar has continued to strengthen against the euro and has eased further vs. the yen. Both of these moves were widely anticipated and confirm the market's basic views.

Clearly the focus of the market is the euro/yen cross, which has touched new all-time lows of 100.40. As noted yesterday the market is now quite euphoric about the economic outlook in Japan while the ongoing pessimism towards the euro has remained firmly in place.

In a dramatic series of moves over the past five days the Swiss franc has both rallied against the dollar from SF1.6750 to SF1.6230 and has now retrenched to SF1.6636. The net move at this point is less than a 1% gain for the SF.

The market continues to await definitive news on production increases to come out of the

OPEC

meetings in Vienna. An output increase of around 1.7 billion barrels per day is anticipated. This increase would be consistent with a price of $25 to $27 per barrel.

Dollar/yen is trading at 105.35 after moving sharply lower. While traders see little likelihood of a major move in this relationship before the release of the

Bank of Japan's

quarterly

tankan

survey, there is a sense that dollar/yen is edging lower. The market is convinced that the yen is going to be supported by stronger economic data in the coming weeks.

The euro remains under constant pressure and has fallen below its recent trading range to around $0.9565.The currency continues to suffer from reduced expectations of future interest rate rises in Europe following the

I G Metall

announcement yesterday that it had settled a wage agreement with the employers. The agreed increase for this year is for 3%, far below the 5.5% demanded by the union.

The reduction of inflation pressures signaled by the settlement does suggest a lessening need for near term interest rate hikes in the euro zone. The market remains unconvinced Europe can match U.S. economic performance and therefore sees no long term support for the euro.

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Euro/yen has borne the brunt of contrasting views of the these two major currencies and has seen lows of 100.40 from last night's New York close of 101.70. At the New York opening the rate has jumped higher to 100.70 apparently as one major buyer is in the market. This move represents a 3% fall this week. As noted yesterday, traders feel that this cross is a good short and last night's activity has confirmed this perspective.

The comments quoted here yesterday afternoon have been fully vindicated, Ben Strauss at

Bank Julius Baer

said," looks like the Europeans have raised rates and had an effect for a few days and now we're back to buying dollars and buying yen." Strauss thinks the euro looks, "awful" and the yen looks bid.

Continuing out of line with the general weakness of European currencies, sterling has been steady against the dollar and is presently trading at $1.5860 after seeing highs of $1.5950. The euro is lower against the pound at 60.30 pence.

Comments last night by

Bank of England

Gov.

Eddie George

that it would not make sense for the BOE to try to weaken the pound have been seen as a "vote of confidence" by U.K. analysts. The comments "have been highlighted as contributory to the euro/sterling collapse overnight," said David White of

NatWest Capital Markets

. With euro/dollar failing to hold onto gains, he sees further problems ahead.

The Australian dollar has fallen sharply in Europe after moving to two-week highs of $0.6160. The Aussie now trades at $0.6090, undermined by weak gold prices and stop-loss selling. Gold has fallen below $280 an ounce for the first time this year.

Following its declines so far this week, the dollar is steady against the Canadian dollar and is now at C$1.4540. As noted here, traders see the possibility of further C$ strength in the short term. Current levels are seen as a key chart point which could lead to further dollar weakness.

On the sidelines of the major currency scene the strength of the Swedish economy has given a positive outlook for the Swedish crown which is expected to firm against the dollar. Growth in Sweden is forecast at 3% plus for each of the next two years. Sweden is expected to join the euro zone in the near future and would like to see the crown weaker against the euro.

Today's action casts further doubt on the stability of dollar/yen and the cross has not been able to move through key supports. Sentiment is now somewhat less positive about the dollar's appreciation possibilities against the yen. Of course, the possibility of central bank intervention is once again a factor in the market.