The greenback resumed its downhill slide against the EUR yesterday, although it did recover slightly later on, as problems in… … the U.S housing sector coupled with credit woes still making investors negative towards the U.S currency.

Although the USD slipped against most of the high yielding currencies, it did manage to gain some
noticeable ground against the GBP on the back of the BoE's disappointing inflation
report, which highlighted the fact that the BoE is facing weaker growth and higher
inflation. There are many analysts that believe that the Fed is intentionally
keeping the greenback at low levels in order to improve the competitiveness of U.S
exporters against the Chinese in the global market and this is possibly the main
driver of the current negative market sentiment surrounding the dollar. The Fed has
lowered its key interest rate in its last two meetings and it is expected to do so
again next month, with the main aim of preventing the U.S economy from hitting a
recession. However the main sector that this rate cut has benefitted so far has been
the U.S stock market which has recently been reaching all time highs, but the
financial, automobile, manufacturing and housing sectors are all in a slump or in a
so-called “recession”. Therefore maintaining a weak dollar may be the best
option for the Fed in order to maintain growth and prevent the economy as a whole
from falling into the recession pit.

There was also a string of significant data released from the U.S yesterday that did
not help the greenback's cause. Although the headline Retail Sales figure released
inline with expectations at 0.2%, the core figure came in slightly below the
previous figure of 0.3% at 0.2%. Also both the headline and core PPI figures
released lower than expected at 0.1% and 0.0% respectively. Looking ahead to today
we are expecting the CPI figures along with the Empire State and Philly Fed
manufacturing surveys. These figures may surprise on the upside which will
temporarily boost the fledgling greenback. However it will be important to note if
the lower producer prices have been passed on to the consumer. The general picture
for the greenback is very much bearish as this seems to be inline with the Fed's
long term objective of sustainable growth, however there will be rallies on its way
down as the market continues to push the USD into oversold territory.

* EUR
The EUR resumed its bullish rampage against the greenback yesterday as the grey
cloud continued to hover over the U.S currency. However the EUR did struggle to
maintain its gains despite the strong European economic data released yesterday.
The most significant news released from the Eurozone yesterday was the German GDP
figure which released slightly better than the expected figure of 0.6% at 0.7%. The
stronger EUR may be explained as the main driver of Tuesday's weaker German investor
sentiment report, as the German economy is heavily reliant on exports, and this may
have raised speculation that the ECB will intervene to halt the EUR's sharp climb.
However yesterday's positive German GDP report negates the possibility of ECB
intervention as there is no reason for the ECB to intervene if the economy is
expanding.

It must be stated that the possibility of a direct ECB intervention in the currency
markets is highly unlikely but nevertheless it will be considered if the
strengthening EUR begins to dampen Eurozone growth. In the meantime the ECB seems to
be moving step-in-step with the Fed with regards to its view on the current price of
the greenback and the EUR. Therefore although the EUR is currently faltering
slightly due to European inflation concerns still being skewed on the upside, the
longer term picture for the EUR is still rosy.

* JPY
The direction of the JPY is heavily reliant on whether carry trades are the
preferred strategy. There has been a strong correlation between carry trades and the
performance of the Dow Jones, and therefore the JPY has had a sharp rise of late.
However earlier today, during the Asian trading session, the JPY lost some of its
gained ground against most of the majors. This hiccup in the JPY bullish path was
as a result of speculation that Japanese mutual funds were investing in higher
yielding countries, in other words carry trades were once again the name of the
game. Also there was negative news released out of Japan as the Tertiary Industry
Activity Index released below the expected figure of -1.0% at -1.6% and this did not
help the JPY's cause. There will be more news out of Japan tonight as the BoJ
Monetary Policy Meeting Minutes will be released. It seems that the future
direction of the JPY could heavily depend on the performance of the Dow, however in
the meanwhile the carry trade unwind may be set to continue.

Technical News
* EUR/USD
The pair is showing signals of fresh bullish momentum, and has already corrected
back the entire fall to 1.4540. Traders should observe the 1.4700 level as an
additional break through that resistance level would validate the bullish move.

* GBP/USD
After dropping 600 pips, the cable is consolidating around 2.0590. The hourlies are
showing moderate bullish momentum, yet the overall direction is surely down. 2.0550
is a key support level, and a breach will confirm that the pair is going to the
2.0400 levels, probably before the weekend.

* USD/JPY
After a touch in the 109.00 level and a correction back to the 111.50, the bearish
momentum is back. There is a bearish cross on the 4 hour chart that indicates a
correction, probably to the 110.00 levels. The dailies are showing that the bearish
momentum is also valid for the longer run.

* USD/CHF
The pair is showing strong bearish momentum and is now testing the 1.1200 level. A
violent break through that level will probably take the pair to the 1.1140 zone
quite quickly. On the upper side, 1.1250 is a very strong resistance, that if
breached we might see a correction to the 1.1320 level, before resuming the bearish
grand move.

The Wild Card
* Gold
The bearish momentum is accumulating power, and appears to be back on track. There
was a 130 pips correction that appears to be over, and gold is now ready to continue
its bearish move to the 780.00 level. This could be a great timing for
forex traders, as gold is still traded at a relatively high price which could be an
excellent entry point.

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