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 1.1280 support level then we
could see another sharp move downward. On the other hand, a breach above the 1.1350
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.

www.forexyard.com