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USD

The US dollar is weaker across the board as the members of the Gulf Cooperation Council debate their Dollar Pegs. The two largest economies in the region, the UAE and Saudi Arabia are divided on whether they should abandon the dollar in favor of a basket peg or to continue to ride out the move and risk taking a further hit to the value of their reserve holdings. The UAE is in favor of a currency basket similar to the one that Kuwait has, while Saudi Arabia dismissed this possibility. A revaluation will be negative for the US dollar, but if things stay status quo and Saudi Arabia wins out, then we could see the dollar bounce. Uncertainty about the outcome of the meeting is keeping the dollar under pressure. Also, Federal Reserve officials continue to grow increasingly dovish. Rosengren who is typically a more modest central banker warned that foreclosures is likely to get worse and the US economy will grow 'well below' potential in coming quarters. With such gloomy outlooks, the Federal Reserve will have to continue lowering interest rates. The futures market is still pricing in a 40 percent chance of 50bp rate cut. Meanwhile the ISM manufacturing survey was right in line with forecasts yesterday, which was a bit of a disappointment because the rise in the regional indices signaled a stronger increase. What's more, a new multi-month low in the employment reading at 47.8 may suggest a dour long-term outlook on demand and production as employers try to trim costs through layoffs and reduced capital spending.

US factory ISM edged down to 50.8 in Nov. Production up, orders steady and jobs down were the three main drivers of the essentially unchanged ISM factory reading last month. 50.8 is the lowest reading the ISM has seen since it dipped below 50 a couple of times, once late last year and again in Q1 this year. That suggests a level of manufacturing activity somewhat weaker than in several of the regional factory surveys (especially New York and Philadelphia), albeit still positive. Notable in the detail (but not part of the composite headline) are the consistently solid export readings, a function of US dollar weakness, and the reacceleration in the prices measure, a function of the oil price.

EUR

Yesterday the EUR traded relatively uneventfully all across the board but it continued to weaken against the USD. In Europe, markets are likely to take direction from interest rate decisions due from the European Central Bank and the Bank of England on Thursday and U.S. jobs data due on Friday. The EUR/USD traded at a low of 1.4621 and a high of 1.4708 before closing the session at 1.4659 at the end of the New York session yesterday. .

According to the latest weak market data, there is very little upside potential for the European GDP to go forward, therefore, even if the U.S. lowers its rates in December it's very unlikely that the ECB is going to increase rates any time soon. The EUR is losing some of its buoyancy because of that. In the following days, traders attention will be focused on Jean Claude Trichets' speech in the post announcement press conference. While no one expects the ECB to hike rates this Thursday, traders will be listening with care to his statement.

As for today, there are only the EUR Producer Price Index and the GBP Construction PMI expected to be released, both of a minor importance. Without further news expected from the European markets today we should see the weak EUR momentum continues.

JPY

The yen rose across the board yesterday as continued uncertainty over fallout from U.S. subprime mortgage market turmoil caused investors to reduce exposure to risky carry trades. By early morning in New York; the USD was down 0.7% at 110.33 against the JPY. The EUR was up 0.5% at 161.81. In addition, the economic data out of Japan was mixed, with industrial production and retail sales proving to be better-than-expected. Industrial production in Japan rose 1.6% to a record in October to meet demand from China and Europe, suggesting that a slowdown in the US will not hinder growth in the Japanese economy.

This week, economic data out of Japan is expected to reflect improvements in third quarter capital spending and labor cash earnings. However, these "improved" figures are also likely to remain negative.

Unless capital spending can surprise to the upside, the fundamental picture for Japan remains bleak. Nevertheless, the JPY may have an opportunity to gain this week, as risk aversion trends remain the primary driver of the low-yielding currency. As a result, traders should keep an eye on global stock markets, as a plummet in equities could push USD/JPY back down towards 109.00.

Technical Analysis

EUR/USD

There is a very solid downward channel forming on the 4 hour chart, as the pair now floats on the upper level. The RSI indicates a bearish momentum towards the bottom of the channel at 1.4550. a breach through that level will unleash an additional bearish move.

GBP/USD

The cable has been trading in a wide range for a while now, and is showing moderate bearish momentum. There is a bearish cross forming on the 4 hour chart, which indicates that the next move might take the cable to the 2.0480. Going short might be preferable today.

USD/JPY

After a touch at the upper level of the 4 hour channel, the pair appears to be back to the bearish route. The slow stochastic indicates that there is still much more room to run, and we might see the 109.00 levels, sooner than we thought.

USD/CHF

The pair has made a corrective move to the very strong resistance level of 1.1300. There was a very strong bearish cross on the 4 hour chart, which shows that the correction move might be over, and that the pair is now ready to continue the strong bearish move. Next target price appears to be around 1.1200.

Wild Card

Crude Oil

The bearish channel on the 1 hour chart has failed to breach again. A bearish momentum is being created as the RSI clearly indicates. That is a great opportunity for Forex traders to enter the bearish correction move at a very good stage of the trend.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.4772	2.0785	111.35	1.1379	0.8900	0.7210
	1.4745	2.0720	111.00	1.1345	0.8835	0.7185
	1.4720	2.0685	110.55	1.1320	0.8790	0.7155
Support	1.4600	2.0600	109.85	1.1240	0.8700	0.7080
	1.4575	2.0574	109.50	1.1219	0.8665	0.7045
	1.4520	2.0500	109.00	1.1200	0.8627	0.7000

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
2007-12-04	00:30	AUD	Retail Sales	m/m	0.8%	-
		Retail Sales Measures the value of sales at the retail level. A rising trend has a positive effect on the nation's currency because Retail Sales make up a large portion of consumer spending, which is a major driver of the economy and has a sizable impact on GDP. Traders pay close attention to Retail Sales because it is usually the first significant indicator of the month that relates to consumer behavior and is susceptible to surprises.
2007-12-04	00:30	AUD	Building Approvals	m/m	6.8%	-
		Building Approvals Measures the number of new construction intentions. This data is a leading indicator for the construction industry since the issuance of a building permit is one of the first steps in the construction process.
2007-12-04	14:00	CAD	Interest Rate Statement		4.50%	-
		Interest Rate Statement The Central Bank Governing Council releases an Interest Rate Statement each month. The statement contains the latest decision regarding changes to the countries short term interest rate ("minimum bid rate"). A rising trend has a positive effect on the nation's currency. Short term interest rates are the paramount factor in currency valuation; traders look at most other indicators merely to predict how interest rates may change in the future. What makes interest rates so important is that high rates attract foreigners looking for the best "risk-free" return on their money, which significantly increases demand for the nation's currency. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, they will respond by raising interest rates in an attempt to bring prices down. This is what makes inflation-predicting indicators so important. Traders know that rising prices will lead the central bank to raise interest rates, which ultimately leads to a more valuable currency.
2007-12-04	22:30	AUD	Interest Rate Statement		6.75%	-
		Interest Rate Statement The Central Bank Governing Council releases an Interest Rate Statement each month. The statement contains the latest decision regarding changes to the countries short term interest rate ("minimum bid rate"). A rising trend has a positive effect on the nation's currency. Short term interest rates are the paramount factor in currency valuation; traders look at most other indicators merely to predict how interest rates may change in the future. What makes interest rates so important is that high rates attract foreigners looking for the best "risk-free" return on their money, which significantly increases demand for the nation's currency. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, they will respond by raising interest rates in an attempt to bring prices down. This is what makes inflation-predicting indicators so important. Traders know that rising prices will lead the central bank to raise interest rates, which ultimately leads to a more valuable currency.