"Forex trading could be your key to financial freedom if you could consistently earn pips and at the same time realising the power of compounding".- Harwin Poon


Down and Out

A few more minutes before the market close, and last day for trading for this year. Our account is in a drawdown when carrys unwind today, dragging the bleeding US dollar after the previous recovery. Not a nice way to end the year. Well... thats part of trading.

Big thanks to everyone who has read this blog and supported our advertisers this year. wishing you all a

merry cristmas and a happy new year!

hope to see you all back here after the holidays.

Investment Banks Expand into Retail Forex

Forex is becoming hot! Average daily volume has surged past $3.2 Trillion, as the credit crunch has increased volatility and the Dollar has collapsed. In fact, Saxo Bank, one of the most prominent acts in retail forex trading, may record $500 million in revenue this year. As a result, several of the world's largest investment banks have announced plans to enter the burgeoning retail forex market. Citigroup is teaming up with a Danish bank to offer online currency trading. Deutsche Bank is stepping up marketing of its proprietary retail trading platform. Even Goldman Sachs is entering the fray, via a 10% investment stake in a British retail forex company.

Read More: Global banks compete for growing forex business

Thin Holiday Trading

Merry Christmas and a prosperous 2008 to all my readers.

Yesterday Foreign Exchange trading volume shrank to around a quarter of normal levels due to holiday in Japan and Christmas Eve in US, Canada, and European countries. The yen fell against high-yielding currencies as rising Asian and European stocks encouraged investors back into carry trades. The dollar reached as high as 114.46 versus the yen, and the euro climbed around 100 pips to 164.87.

The euro climbed to a fresh all-time high at 0.7288 versus the sterling on concern that UK economy is slowing down and the Bank of England may continue to cut interest rates next year. In contrast, the European Central Bank is likely to keep rates unchanged in 2008.

EUR/CHF Up or Down?

Will EURCHF trend up or down next week? Fundamental views is up while the daily chart shows mixed signal.

Carry Trade Gains Favor

It's been rough sailing for the Yen carry trade of late; the technique had been sagging in popularity due to the credit crunch and the associated trend towards risk aversion.

Over the last few weeks, however, the Yen has fallen, which is to say the Yen Carry Trade is making a comeback. First, came the announcement that the world's leading Central Banks would be injecting hundreds of billions of dollars in the banking system, in order to ease growing liquidity concerns. Next, the Bank of Japan hinted that it would hold rates at .5%, the lowest in the industrialized world. Finally, a continued surge in commodity prices virtually ensures that countries rich in natural resources, such as Canada and Australia, remain viable "targets" for carry traders.

Overall, the story remains focused around volatility. In fact, one investment bank discovered an inverse correlation between the S&P 500 and the Japanese Yen. In other words, the appetite for risk appears closely correlated with the strength of global capital markets and the popularity of the Yen carry trade.

GBP/JPY surge the whole day yesterday, while EUR/CHF trended up and made a slight corretion after hitting the upper channel that I mentioned yesterday.

EUR/CHF 12.21 Analysis

Zooming in to the 1h chart, EURCHF caught in a range within a channel. Break of the lower channel will test the previous strong support at 1.6550, thats the 61.8 fib of the 12/05/07 low to 12/14/07 hi swing. Breaking the upper channel will test the major trendline I mentioned on my earlier post.

Right now, 1h and 4h are in bear bias with 72EMA so flat showing to clear direction. Daily chart showing a possible bull forming, but Stoch and CCI curved up at the middle of OB & OS, which makes me hesitate to conclude a bull. 1h to daily ADX shows no (low) momentum since monday. I will still stay aside while holding some drawdown positions.

This next analysis has nothing to do with true north hedge trade. Just pointing out how to use the template I sent out to our members.

NZDUSD dailies is also within a uptrend channel. Stoch & CCI about to crossed up. Price having a hard time breaking the lower channel. If broke, target would be the 50% fib (.7290). Enter at 0.7420 confirmation, set SL at the lower channel.

However, if price bounced from the lower channel. Set entry at 0.7640 with TP at the upper channel, SL at 0.7420. This is a long term trade which moght take days to reach the target. Trade it at your own risk. Not recommended to included this trade with your hedge trade account.

ECB Pumps Record Liquidity into Market

The ECB announced that it would offer unlimited funds at below market interest rates in an effort to preempt a credit crunch heading into the end of the year. The bank confirmed it had allotted 348.6 billion euros at 4.21% to pump into the financial system, if deemed necessary. The move is another sign that last week’s coordinated intervention was deemed insufficient by the ECB to free up credit markets and deter a liquidity crisis.

The euro edged back above the 1.44-level against the dollar in a directionless session as liquidity winds down heading into the end of the year. The single currency is likely to remain under pressure as the dollar remains buoyed amid widespread position squaring and overall reassessment of the extent to which the FOMC will be able to ease rates over the coming months – given stubborn inflationary pressure in the US.

Trading conditions will likely remain thin heading into the year-end holidays, with a bias towards a higher dollar as traders close their books. Nonetheless, volatility could also pick up given the thinning liquidity.

Central Banks Inject Liquidity

After months of delay and perhaps overly wishful thinking regarding the global credit crunch, the world's Central Banks are finally ready to take action.

America's Federal Reserve Bank will join forces with the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank as part of a concerted effort to introduce greater liquidity into global capital markets.

Under the plan, the Banks will auction off tens of billions of Dollars worth of bonds denominated in their respective currencies, and lend the proceeds to commercial banks. The goal of the plan is to to limit growing risk aversion, which has caused banks to significantly rein in lending.

Further, while the move is designed primarily to boost confidence in equity markets, certain sectors of forex may also receive a bump. High-yielding currencies such as the New Zealand Kiwi and Australian Dollar, which have been shunned in recent months, seem to be the most likely beneficiaries.

Read more at Forbes.com

This is good news for collerated pairs hedge traders and carrys tarders or the whole global economy. But until then, carry pairs are still in bearish bias until rumour is digested.

EUR/CHF 12.18 Analysis

EURCHF daily chart- It broke the (minor) support trendline yesterday with great volume suggesting a bearish trend formed.

Price now at 1.6550, 50% fib of Oct. 29 high to Nov. 23 low. Confluence with the 72EMA (purple line). I think price will bounce a bit from here before go down further.

Game Plan: If it make a upward correction today, and your positions reached breakeven, close it. Stay away from the market 'til the upper trendline (orange line) on the daily chart is broke. Lower trendline is a good level to start a long hedge, if you still have enough margin left to risk. But before that, watch out on 1.6500 to 1.6450 level, another minor support level before the lower trendline.

EUR/CHF 12.17 Analysis

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EURCHF 4h chart- Watch the 2 support trendline. Price seems to bounced on the first one with Stoch and CCI supporting the view.

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EURCHF 1h chart- Same scenario as 4h chart, Stoch and CCI about to crossed up. Wait of a confirmation. Broke of the support trendline means bearish trend is formed.

However, we have a bearish bias on the daily chart.I will stay out on this one. I'm expecting these 2 weeks to have low volatile market due to holiday season.

Fed Expected to Cut Interest Rates Again

Faced with a spreading mortgage crisis, the Federal Reserve is expected to cut interest rates for a third time later and hint that even more rate cuts could be forthcoming.

Fed Chairman Ben Bernanke has clearly signaled this outcome in a speech last month in which he said that the latest bout of financial market turbulence raised greater risks for the economy.

Most economists are expecting a quarter-point cut in the federal funds rate at Tuesday's meeting, which will be the Fed's last rate-setting discussion this year. That would push the federal funds rate down 4.25 percent and send bank's prime lending rate, the benchmark for millions of consumer and business loans, down to 7.25 percent, the lowest level in two years.

The Fed started cutting rates in September with a bolder-than-expected half-point move and then reduced the funds rate by a quarter-point at its Oct. 31 meeting. The central bank was trying to make sure that a severe slump in housing, spreading mortgage defaults and financial market turbulence which hit with force in August did not derail the economy.

In its October announcement, the Fed indicated that its two rate cuts might well be all that would be needed to make sure the country was not pushed into a recession.

But that view has undergone a dramatic about-face in the six weeks since that time, reflecting worsening conditions in financial markets and continued sharp declines in housing as lenders tighten standards in response to rising mortgage defaults.

Many analysts believe the current quarter and the early part of next year will represent the period of maximum danger for a possible recession.

"I think a full blown recession can be avoided but just barely," said David Jones, chief economist at DMJ Advisors. He predicted that the Fed will follow up its expected December rate cut with three more reductions at its first three meetings of 2008.

For all of 2008, a forecasting panel of the Securities Industry and Financial Market Markets Association said Monday it believed overall economic growth, as measured by the gross domestic product, would come in at an anemic 2.1 percent as housing construction and sales continue to fall for most of the year. That would be the weakest GDP growth in six years.

EUR/CHF 12.11 Analysis

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Short term (Intraday)
Now at 1.6595. EUR/CHF broke 1,6575 resistance. EUR/CHF is in an uptrend supported by daily chart's indicators. The volatility is high. 72EMA 1H, 4H are in a bullish configuration. 1H, 4H, dailies Stochastic indicate a bullish pressure on EUR/CHF.

The uptrend should continue to gather momentum. Wait for a minor retrace on 1h chart before entering a long hedge. Use True North Hedge Calculator to determine the number of lots to buy on EUR/USD and USD/CHF pairs,

USD Drifts Lower, All Eyes on FOMC

The dollar struggled against the euro and sterling at the start of the week, slipping to 1.4735 versus the single currency and 2.0487 against the pound. Sentiment over the direction of global interest rates continue to impact foreign exchange – with the euro benefiting today from hawkish commentary from ECB officials. With inflationary pressure continuing to linger in the Eurozone, members have hinted at the possibility for additional policy tightening down the road.

Market attention remains fixated on the outcome for tomorrow’s FOMC policy meeting, due out at 2:15 PM. Heading into the meeting, expectations for a more aggressive 50-basis point rate cut have been tempered in light of recent economic data, such as the upbeat jobs report from last Friday and the latest reports on inflation. Nonetheless, given uncertainties on the soundness of banks’ balance sheets and tight credit conditions – the Fed may still take extra precaution to ensure stability in the financial markets. Meanwhile, the greenback continues to trade on weaker footing with markets pricing in at least another 25-basis point rate cut tomorrow, lowering its benchmark lending rate to 4.25%.

Canada Dismisses Currency Peg

Unnerved by the tremendous appreciation in its nation’s currency, Canada’s Parliament is officially mulling the possibility of pegging the Loonie to the USD. It’s unclear at what value the two currencies would be linked, perhaps at parity. However, in testifying before Parliament, the future leader of the Bank of Canada argued staunchly against such an exchange rate regime. Such a relationship, he warned, would cripple Canada’s ability to conduct monetary policy, independent of the US. So long as the Loonie remained fixed to the Dollar, Canada would be forced into mirroring US interest rate movements. Because of several fundamental differences in their respective economies, it seems unlikely that this policy will be implemented.

Euro Gained On Trichet's Hawkish Comments

The euro gained across the board after the European Central Bank left interest rates unchanged at 4.0% as expected. ECB Chairman Trichet said in the post-meeting press conference that the biggest risk for price pressures is that they will increase. His hawkish comments reduced expectations of a rate easing in the coming couple of months. The euro broke 1.46 and tested 1.4650 versus the dollar.

Meanwhile, the Bank of England (BOE) made its first rate cut decision in 2 two years. The bank lowered its benchmark rates by a quarter-percentage point to 5.50%. The sterling dipped to as low as 2.0184 after the rate decision.

The dollar was little changed after a report showed US weekly jobless claims fell from 352k to 338k. Market will focus on the employment report to be released by the Labor Department tomorrow. Non-farm payrolls are expected to fall from 166k to 75k in November. Should the job report surprised the market by showing an above 100k figure as Wednesday's ADP job report did, the greenback is very likely to rebound sharply across the board.

The Canadian dollar gained as oil price rebounded to above 90 dollar per barrel and a run of strong economic data.

A reprieve for the Dollar?

The last two years have witnessed a veritable collapse in the value of the Dollar, which has declined over 25% against the Euro, alone. While opinion remains divided, many analysts are predicting a (temporary) cessation in the Dollar’s downward slide. The reasoning is that the worst possible scenario involving the American housing crisis has already been priced into the Dollar. Furthermore, experts argue that the inevitable loosening of American monetary policy will help boost the American economy by preventing it from slipping into recession. Finally, there is the notion that China will begin to take steps to appreciate its currency relative to the Euro, which has actually risen against the RMB. The law of triangular arbitrage requires that any rise in the Euro against the Yuan must be matched by a proportional rise in either the Dollar/Euro or the Dollar/RMB rate, the latter of which seems unlikely.

Currency Trader Magazine December 2007 issue

Free copy of Currency Trader magazine december issue is ready to download!
1. Download this issue at www.currencytradermag.com/cerb71.htm
2. Download last month's issue at www.currencytradermag.com/dyt53.htm

If you do not already have the latest version installed on your computer, download Adobe Acrobat Reader at www.adobe.com/products/acrobat/readstep2.html

CAD Slumped After Rate Cut

The Canadian dollar slumped after the Bank of Canada cut overnight interest rates by a quarter-percentage point to 4.25% on its monetary policy meeting today. This decision surprised the market a bit and drove the loonie weaken to 1.0150 versus the dollar, the highest since the pair dropping below par.

Besides, the fall in energy prices weighs on the loonie. Crude oil fell to the lowest close since October on concern that the Organization of Petroleum Exporting Countries may increase oil output tomorrow.

Can You Afford Extreme Early Retirement?

This is a good read from Yahoo finance. Article provided by bankrate.com.

Could retirement before you're even eligible to join AARP be the quintessential impossible dream? Not if you're consistently disciplined, focused, driven and don't give a hoot about what the Joneses think of that beat-up Chevy in the driveway, say experts.

Whether you work to live or live to work is a question increasingly answered in favor of living by couples who have opted out of the daily grind before the traditional "early" retirement age of 50-something. What's more, they're not going quietly, but instead are springing up on Web sites and in media interviews, telling their stories and encouraging others to follow suit.

Bankrate found two such couples who were eager to share their tales of extreme early retirement: Billy and Akaisha Kaderli, and Sandy Aldridge and partner Dale Lugenbehl. Though their lifestyles are vastly different, they share many traits. Several Bankrate readers also shared their early retirement experiences.

More From Bankrate.com:

• Five Tips to Improve Your Credit Score

• Breaking a Car Lease Gets Easier

• Home Prices Fall, Sales Fall Faster

Set free to roam the world
The Kaderlis can count themselves as members of a small group of founders of the extreme early retirement trend among baby boomers. Now in their 17th year of retirement, the couple ditched their 9-to-5 jobs when they were 38 years old.

At 55, they say they would have made the same choice again, only investing sooner and with more confidence. The Kaderlis' initial $500,000 nest egg has grown steadily, partly because they hung in the stock market through the '90s boom and the historic bust that followed, and partly because they've lived on an average of just $24,000 a year. Initially, they put all their savings in a low-cost index fund.

Retiring at 38, they say, was an excellent age because they had accumulated life experiences through their careers: He was a former restaurant chef and owner, and at one time, the youngest branch manager at brokerage Dean Witter, while she continued to run the restaurant.

"We retired with youth, vigor and plenty of enthusiasm to venture out into traveling the globe. Retiring earlier, we would not have acquired enough skill or self knowledge about how we are able to interact with the world," the couple wrote from Thailand.

The Kaderlis sold their home when they retired, and remained homeless while they explored the world, spending time in the Caribbean island of Nevis, as well as in Venezuela, Mexico and Thailand. They recently purchased a small home in an Arizona retirement community, and now split their time between Chiang Mai, Thailand, and Mesa, Ariz., when not traveling to other countries.

Their Web site, www.retireearlylifestyle.com, gives them the opportunity to communicate with other early retirees, as well as educate the younger generation. Their advice to 20-somethings who want to follow the same path is simple: Save everything and stay out of debt.

Out of the mainstream
Extreme early retirement strikes a chord with people now more than in the past, says MSN personal finance columnist and author Liz Pulliam Weston. While going against the fearsome icon of the "company man" used to be part of the '60s counterculture, Weston says she's seeing a resurgence of the attitude among 20-somethings who are rejecting the consumerism that began in the 1980s. "They want more than to be chained to their desks," she says, and they have more desire to redesign their career to have more personal meaning. Sometimes that means working until 65, but shifting often to careers that suit their changing mindset.

Whether today's employees are enchanted with the idea of dropping out early or not, it's still a small group of people who can make it happen, according to Weston. "You have to be out of the mainstream to do this," she says, adding that in her experience, the successful extreme early retirees are "laser-like, and don't seem to care what people think."

Aside from an unwavering focus on their goal and an indifferent attitude toward amassing all the latest stuff, extreme early retirees can't be lumped into the same category. They run the gamut from young parents, singles and dual-income couples without children. Weston has talked to couples with as many as four children who are living in expensive areas of the country, as well as those who have no family ties and a cabin in the woods.

They share an excitement about their lives, a desire to spend time in pursuits that are meaningful to them, and often, an environmental conscience.

The simple life
All three traits apply to Aldridge and Lugenbehl, who retired more than a dozen years ago to an eight-acre parcel in Cottage Grove, Ore., with a starting nest egg of $135,000 each. They each contributed $50,000 to buy the land where they built their home, and the remainder is in CDs. They live on $400 a month, and have a health insurance policy with a deductible of $7,500.

The money has remained conservatively invested in CDs. "We like to sleep at night, so it's more important to us to know what's coming in, rather than to maximize the possible income," says Aldridge. "We've seen too many folks lose money rather than make money from their so-called investments."

Aldridge and Lugenbehl, who retired at ages 48 and 47, don't have a television and rarely eat out. Yet they don't feel like their life is lacking, says Aldridge. "We are fortunate to have found what is enough for us. I feel so totally blessed with how much we have that I can't imagine wanting more. At this point, I'd have to say it's more than enough to meet our needs and our wants."

Tips for extreme early retirement 'wannabes'
Billy and Akaisha Kaderli, the "grandparents" of the extreme early retirement movement for baby boomers, share their mantra for those seeking to follow the same path: Work hard, spend little, save a lot and spend wisely. Their additional tips include:

• Set spending and investment priorities now for the future
• Stay 100 percent out of debt, except for a mortgage
• Invest in stocks through index and mutual funds
• Use the compounding effect of time by investing early
• Seek a partner with the same financial values

Billy and Akaisha Kaderli at Kata Beach, Thailand
Aldridge acknowledges that the cost of living is lower where they are, but says they make an art form out of living well on less. They grow most of their own food, shop for clothes at yard sales, which Aldridge says is a form of entertainment for her, and find joy in small construction and gardening projects on their property.

The two cook their own meals from scratch, and volunteer to give presentations on the environmental impact of food choices, as well as what Aldridge calls "voluntary simplicity."

"Dale and I would both rather have our time," she says, "even if we end up choosing to work hard at gardening or building. At least we're the ones determining what we're going to do with our precious life energy."

Pursuing passions
Finding passion outside of a career that had become a chore is a theme among most extreme early retirees. For the Kaderlis, that meant world travel and a chance to experience diverse cultures.

"We have our youth and spirit of adventure," they wrote. "The opportunity to travel to exotic locations and meet people from foreign lands has given us a global view that no amount of money could buy."

Aldridge and Lugenbehl enjoy their day-to-day life so much that the thought of vacationing elsewhere rarely occurs to them. "We exercise faithfully three days a week, and usually take a long walk on the other four," says Aldridge. "My mother lives up here now and we take care of her. We do all the regular garden and orchard work."

The abundance of time and the freedom to choose how to spend it are the most satisfying aspects of retirement for Aldridge. "It's being able to get up each morning and decide for myself what I'm going to be doing that day. Honestly, I can't think of any downside; at least there hasn't been one for me."

Surprising reactions
Whether it's the green tinge of envy or an aversion to anyone who steps off life's predictable treadmill, extreme early retirees often face unexpected opposition from those around them.

"Back when we left our jobs, we got mostly shock," says Aldridge. "Dale's mother was a classic. She was sure we were going to go hungry and be out in the cold. That was about 13 years ago, and it's never been a problem."

"Some people have expressed envy, but we don't think we did anything they couldn't do if it really was a priority for them," she adds. "Most of our work history was part-time, and not all that highly-paid."

Aldridge says Lugenbehl's mother couldn't imagine how they would fill their time in retirement. "It was as if she thought we wouldn't be able to find things to do. My response was to ask her what she did with her time. Not another word was said because she realized that she'd never had any trouble in that regard."

The Kaderlis say that when they first retired, people treated them like they were on an extended vacation and would soon return to work. "Some thought we were committing social and financial suicide, and others projected that we were selfish or lazy since we opted out of the mandatory working world. This included family members, friends and even strangers. Our choice of early retirement was too far out of the box for them."

Think like an entrepreneur
Both the Kaderlis and Aldridge say they have always been debt free, except for the time when they had mortgages, and they avoid debt now like the plague. They also live below their means, even when their investments throw off more income.

These two actions are key to the ability to retire early, says Herb Hopwood, president of Hopwood Financial Services in Great Falls, Va. "It really comes down to the fact that you can't control what the markets are going to do, but one thing you can control is your expenses, and that's probably the biggest thing."

Hopwood likens extreme early retirement to extreme sports. "Extreme sports are risky and you must be in great physical shape. Early retirement is risky, because what you're planning is going to be for a long period of time without income...and you have to be in great financial shape."

After an initial financial plan is developed, whether informally penciled on the back of an envelope like the Kaderlis' or more formally with a financial planner, it has to be monitored and changed. Setting yourself up to receive the same income no matter how the markets perform can result in financial disaster, says Hopwood. "The objective is not to tap the principal."

Once you begin doing that, he says, it's alarming how fast principal erodes, leaving you with a smaller pot from which to draw income. A portfolio should remain fairly aggressive in equities, up to 70 percent of the total. But Hopwood cautions against a blanket approach when it comes to what's considered aggressive. "You can be aggressive in allocation, and stupid in investments." For instance, he wouldn't recommend that all the equity allocation be in biotech, or growth stocks, but in a balanced blend that will return an average of 8 percent over time.

Hopwood recommends that clients seeking a long retirement train themselves to think like entrepreneurs. The portfolio, rather than a job, is providing income, and like an entrepreneur, a retiree should be constantly watching and adjusting the rate of income.

"Too many people adjust their lifestyle to their income. That's a very dangerous thing to do."

Commentary: The PetroDollar Debate

By: Forex Blog

Now that the furor over the US housing crisis/credit crunch has begun to subside in forex markets, investors have turned their attention to what is perhaps the second biggest threat to the Dollar’s long term health: the PetroDollar phenomenon. In short, the price oil is denominated in Dollars and many oil-exporting nations peg their currencies to the USD. Having found themselves awash in cash, such nations are beginning to ponder greater financial independence from the declining Dollar.

The anecdotal evidence for the declining importance of the Dollar among oil-exporting countries could not be stronger. Last week two developments. First, OPEC is considering altering the way oil contracts are settled, by pricing oil in a basket of currencies rather than in USD. Next, the members of the Gulf Coast Council are considering de-pegging their currencies from the Dollar, due to rising inflation and the increasing opportunity cost of owning Dollar-denominated assets.

Actual data, on the other hand, suggests that OPEC may be moving in the opposite direction, towards a greater dependence on the Dollar. The US remains the most popular destination for petrodollar investments, attracting 55% of all such investment capital. Europe comes in at a distant second, attracting just 18%. Plus, in the last year, oil money has been used to make several widely-publicized investments in American investment groups, including a recent $7.5 Billion investment in Citigroup by the Abu Dhabi Investment Authority.

The evidence is certainly nuanced. In all likelihood, OPEC will make good on Iran's failed attempt to sell oil denominated in Euros by linking oil to a basket of currencies. In their own words, “oil is being sold in a currency whose value was eroding by the day.” At the same time, the US is still the home of the world’s best capital markets, from the standpoint of stability and risk. Thus, while it’s possible that some or all of the members of the GCC will de-peg their currencies from the Dollar, any relative decrease in Dollar-denominated investments is likely to be passive, rather than active.

USD Softer, Awaits Data

The currency market has much to digest this week as traders look ahead to monetary policy decisions from several central banks, including the BoC, RBA, BoE and ECB. The greenback relinquished some of last week's gains in early Monday trading, slipping against the sterling and yen. The major currency pairs will likely be dictated by a combination of sentiment over global interest rate differentials as well as any new revelations from the subprime debacle and credit crisis.

Fed Chairman Bernanke's comments last week heightened market expectations for a December rate cut. It remains unclear however, whether the anticipated ease will be a 25-bp or 50-bp cut.

Fed to Cut Rates Next Month?

In recent speeches, two high-ranking officials from America’s Federal Reserve Bank gave conflicting indications regarding the likelihood of rate cuts next month. Both officials were deliberately ambiguous in their speeches, though one went so far as to rule out a rate cut while the other hinted at its inevitability. Nonetheless, analysts used the speeches to buttress their conclusion that a rate cut is probable. In fact, the futures market has priced in a 94% chance that rates will be cut by 25 basis points at the next meeting, on December 11. Likewise, it seems a rate cut has already been priced into the USD.

Yen Fall as Global Stocks Surge

The yen fell versus high-yielding currencies as global stocks rebounded this week. Carry trades came back to the market as investors regained their risk appetite.

The greenback gained as US corporations squared positions to realize profits on financial statements by the end of the month. The euro dipped to lower 1.46 versus the dollar, and the sterling fell to below 2.06.

The euro zone CPI rose at a faster-than-expected rate of 3%, increasing the case for an unchanged rate decision at ECB¡¯s next policy meeting. In the medium term, the euro is more favorable than the dollar in terms of the interest rate outlook.

US personal income rose at 0.2% in October, below the estimate and the previous reading of 0.4%. Personal spending also fell to 0.2%, lower than the expectation of 0.3%. A key inflation measure, core PCE index, remained at a monthly rate of 0.2% as expected. Chicago PMI rose from 49.7 to 52.9 in October, better than the estimate of 50.3.

The situation the Fed faces now is the inflation is contained and the economy is slowing. US futures showed traders are pricing in a 68 percent chance the Fed will cut its interest rates by a quarter-percentage point to 4.25%

Fed Chairman Ben Bernanke said yesterday on the Charlotte Chamber of Commerce meeting that resurgence in financial market in these two weeks dimmed US economic outlook. The dollar was under pressure after his comments.

The six members of the Gulf Cooperation Council may relax their fixed exchange rates to the US dollar at a meeting next Monday.

EURUSD will face interim resistance at 1.4650, followed by 1.4680 and 1.47. Additional ceilings will emerge at 1.4750, backed by 1.4780. Support starts at 1.46, backed by 1.4580, 1.4550 and 1.4520. Subsequent floors are eyed at 1.45.

GBPUSD encounters interim resistance at 2.06, backed by 2.0650 and 2.0680. Subsequent ceilings will emerge at 2.07, followed by 2.0730 and 2.0750. On the downside, support begins at 2.0550, followed by 2.0520 and 2.05. Additional floors are eyed at 2.0470, backed by 2.0450 and 2.04.

USDJPY encounters interim resistance at 111.30, backed by 111.50 and 111.80. Subsequent ceilings will emerge at 112, followed by 112.50 and 113. On the downside, support begins at 111 and 110.80, followed by 110.50. Additional floors are eyed at 110.20, backed by 110 and 109.50.