Interest rates have been the focus of this week's trading. The Fed held steady on interest rates on Tuesday, leaving Fed funds at 2.0%. Today, both the BoE and the ECB followed suit, leaving interest rates unchanged at 5.0% and 4.25% respectively. The Bank of Korea hiked rates by 25bp to 5.25%, citing inflation concerns.

Weaker economic data in the Eurozone over the past several weeks led to diminished expectations of a rate hike. While inflation in Europe is likely to remain stubbornly high for some time, the recent retreat in energy and food costs provided the ECB with the necessary cover to leave rates unchanged.

The ECB's press conference will likely acknowledge downside risks to growth, while maintaining a very hawkish tone on inflation. Just how hawkish the tone is will probably set expectations with regard to any future rate hikes, which will in turn set the near-term tone for the euro.

Recent euro weakness has forced the dollar back toward the high end of its 4-month range. The EUR-USD rate probed briefly below the 1.5400 level yesterday, but these losses could not be sustained. The lower limits of the range are defined by 1.5306 (13-Jun low) 1.5286 (08-May low), which remain well protected at this point.

A decidedly hawkish tone in the press conference would increase the chances of tighter monetary policy later in the year and could spark some position taking on the long side of the euro. A move in the EUR-USD back above 1.5515/16 would ease short-term pressure on the downside, favoring a return to an area just above 1.5600, where the 20, 50 and 100-day moving averages are converging.

The euro continues to display good resilience on a cross-rate basis. EUR-JPY remains within striking distance of the 169.97 historic high from July. A similar positive tone is evident in EUR-CHF, where a breach of resistance at 1.6370/78 would suggest potential back to the 1.6829 peak from Oct-07. A move back above 0.8000 in the EUR-GBP would return focus to the .8098 high from Apr.

Persistent euro strength against the major crosses is likely to limit the downside in the euro against the dollar. Given the ECB's single mandate of price stability, we will probably see another rate hike in Europe before we see tighter policy in the US.

The dollar index has pressured the range high at 74.31 (13-Jun high), but this level has capped the upside thus far. A retreat below 73.56/53 would take the pressure off the upside and favor a return to the 72.00 zone.

Signs of renewed weakness in the dollar would bolster gold, which continues to trade below $900. Strong jewelry demand, particularly out of India has contained the downside thus far, leaving the 850/845 support level unmolested.

India is the world's largest consumer of physical gold. Seeing them back in the market, in a fairly aggressive manner, is encouraging. As Mike Kosares likes to point out, paper sales offer physical buying opportunities.

Gold Market Movers:

US initial claims +7k to 455k.

ECB holds steady on rates at 4.25%.

BoE holds steady on rates at 5.0%.

German production for Jun +0.2%.

BoK raises rates by 25bp to 5.25%, citing inflation concerns.

The Fed's next move is down

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Credit crisis continues to weigh on Asia

Crude oil rises as Turkey says pipeline repair may take 2 weeks