Economic News
 
USD

Yesterday the US dollar continued its bullish movement against most of the major currencies. The dollar strengthened mainly against the EUR and the GBP especially after the ECB reported that inflation risks remain on the upside. While the British are experiencing a drop in inflation after their recent rate cut as indicated by yesterday's lower CPI figures, which could now also be a concern. The EUR was traded on $1.4360 against the US dollar during the early trading hours in Europe, down from $1.4390 in New York late Wednesday, and has reached 1.4313 during noon hours in Europe. The greenback strengthened extremely into the London open with the Cable losing another 100 pips as the pair reached a low of 1.9877. The Sterling sided below 2.0000 per US dollar for the first time since September, decreasing to $1.9869 from $2.0133. The Sterling fell after a government report showed the current account-deficit widened to a record 20 billion Sterling, or 5.7% of GDP in the third quarter. As it stands at the moment, the Bank of England is on the way to another rate cut in January. However as the CPI figures indicated yesterday, falling inflation will be problematic and could halt any further rate from BoE.

The US dollar has rebounded from a record low of $1.4967 per euro last month, paring its yearly drop to 8.5 percent. The dollar has advanced against all of the 16 most actively traded currencies this month, reversing its earlier negative sentiment. U.S. growth slowed this quarter to a 1% annual rate from a 4.9% rate in July to September. Fed bureaucrats forecasted already last month that the growth would slow down to as little as 1.8% by the end of next year. The Labor Department report showed that more people signed up for unemployment benefits last week, suggesting that the job market is softening. Meanwhile, this week the and Federal Reserve Bank of Richmond President Jeffrey Lacker said that the U.S. economy will be very weak in 2008 mainly regarding the housing market contracts. The Fed still makes a massive effort to moderate the economy from the worst housing recession in 16 years, cutting its key interest rate 1% in the last three months to 4.25%, the most significant since the last recession in 2001. However the string of Fed rate cuts this year has provided the housing and credit markets this year with some reprieve. So although U.S growth is expected to slowdown, we may still see underlying strength in the U.S economy which should create positive sentiment for the greenback in the New Year. Many analysts believe that we may see the greenback rebound to the 1.3500 in the next few months.  

EUR

Europe's 13-nation currency has dropped by 1.8% versus the US dollar as business confidence in Germany, Europe's principal economy, fell to the lowest in approximately two years in December and did not appear to benefit from an unexpected rise on Thursday. Any economic slowdown would increase the European Central Bank's justifiability to raise interest rates from their current rate of 4 percent. The EUR may weaken to a two-month low of $1.4160 against the dollar should it stay below so-called support at about $1.44, according to Bank of Tokyo-Mitsubishi UFJ Ltd. The ECB is expected to hold rates steady at 4 percent that has been a sharp contrast to that of the U.S. Federal Reserve, which has already cut rates twice to 4.25 percent to try to constrict an economic slowdown from the subprime crisis. Elsewhere the Cable fell to fresh three-month lows versus the US dollar as the fallout from Wednesday's dovish Bank of England minutes continued. The minutes showed the nine-member Monetary Policy Committee voted collectively to cut key interest rates by a quarter point to 5.50%. The news caused the Cable to fall below the key psychological 2.0000 per US dollar level, which marks transfer in sentiment. The cable has hit a fresh three-month low of 1.9878 versus the US dollar. Today the UK Retail Sales are expected to register another uninspiring reading but the report has actually surprised to the positive aspect in the last 3 out of 4 months. So we could see the Sterling consolidate today after its recent pitfalls.

JPY

Yesterday the Japanese central bank kept the key interest rate at 0.5 percent, and as stands, the BOJ will probably remain quit passive through the first quarter of 2008.The decision to keep the interest rate fixed was commonly expected by the policy board as the effects of the U.S. subprime mortgage crisis keep on resounding in the global markets and darken the outlook for Japan's economy. Many investors believe that the central bank will not increase key interest rates until the middle of next year. Nevertheless the JPY remained high after the Bank of Japan Governor Toshihiko Fukui said the central bank will raise rates slowly but surely as the U.S. economy slows. Data on Thursday showed Japan's exports are still growing in November from a year earlier but economists said they may be losing momentum, probably due to the credit crunch. Wages have barely risen this year despite strong corporate earnings and tight labor markets. In addition, yesterday the JPY rose against the EUR and the US dollar on speculation that the widening credit-market losses and slow economic growth will carry away demand for higher-yielding assets. Yesterday the JPY press forward against all its 16 most activated currencies as investors reduced carry trades. The yen rose to 162.18 against the EUR from 163.13 yesterday, and climbed to 113.19 against the US dollar from 113.43. The JPY rose to 97.23 against Australia's dollar, from 97.43 yesterday, and got stronger to 85.46 against the NZD from 85.69. It seems that JPY will maintain its bullish momentum today as carry trades continue to unwind. 

Technical News
 
EUR/USD

The Pair was range trading yesterday between a support level of 1.4310 and a resistance level of 1.4380. Should the pair trade today above the pivot level of 1.4400, then we may see a slight correction before another break downwards. Therefore traders should wait for this pair to rise some more before entering an early short.  

GBP/USD

The 4 hour chart indicates a continued bearish trend as the long term Moving Average (Weighted 21) crossed by a bearish bar. Additionally the ADX (Average Directional Movement) also strengthens our opinion while the DI- is on its way to crossing the DI+ from above which is considered a bearish signal. However this pair currently seems to have bottomed out, so there should be a rise before the cable breaks down again.  

USD/JPY

This pair now seems to be leveling out after a steady uptrend. It is in the middle of a flat channel, so if there is a breach of the key 112.80 support level then we could see another sharp move downward. On the other hand, a breach above the 113.50 could indicate another bullish trend. Traders should be cautious and await further movement for a clearer signal.  

USD/CHF

This pair is in the midst of a very strong uptrend which is slowly appearing to be leveling out. The hourly charts are showing that a certain correction is imminent, while the daily charts are showing an intensive bullish sentiment. It looks as if this pair could drop below the 1.1500 before we see another sharp bullish move.  


The Wild Card
 
Gold

This commodity is giving a strong bullish signal on the 4 H and daily chart. The positively sloped RSI and momentum support this bullish notion. The Stochastic Slow is also giving a strong signal that this pair's next move will be bullish. Therefore this gives Forex traders the perfect opportunity to catch an early uptrend.