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The US cut another 50bps off the interest rates yesterday, and sent equities soaring, and the dollar took a major hit. Risk-related pairs went through the roof, many of them approaching the 50% retrace on the monthly charts. All eyes are now focused on the GBP and EUR, and looking for these pairs to fall in line with future rate cuts.

Most correlations seen during this credit crisis have been right on spot, but now in reverse. As the equity markets rallied, currency pairs followed suit, and the USD lost a significant amount of ground to most majors.

One chart to print out and pin to the wall should be the USD/CAD performing a leap only seen at the circus. For the time being any shorts (long dollars) will be pushed aside to give room for the strength of this trend.

Traders will favor longs at key level on EUR/USD and GBP/USD as well as most USD majors, and playing a pullback should not be hard to recognize. Keep in mind that rate cuts on GBP and EUR will produce movement but not the same impact as seen on the USD. It now becomes a race to see if these countries can keep up to speed with the US.  

Japanese equity markets showing big signs of strength today following the open, trying to recover from 5 straight losing sessions. US home sales came out a little better than expected yesterday, and the US rallied early on, but just as easily it gave up gains late in the day. Volatility is nonstop. In most parts of the globe, signs of improvement are still very scarce, but Japan’s rebound is sending a big signal.

GBP continue to get heavily weighted by noise of recession and expected rate cuts. EUR hit a new low again last night, but GBPis still consolidated above its 1.5300 level. In the case of both, we see optimistic signs of hope during the day (rises in spot value) as selling opportunities at later times. There was reluctance to sell last tonight based on Japanese market data and severe movements in volatility to the upside yesterday and on Friday, but fundamentally, little has changed.
 

GBPhas levels of volatility simply no one is used to. We have been joking around that every 5 minutes, another 100 pips come and go. Fading the pair has been rather erratic though playing breakouts to the downside and upside have been working out quite well. Anytime a new base is formed, breakouts have been strong and forceful, something we wish was more frequent than not.
  

 This week will be a stage setter with rate cut decisions being tossed around and the close of the month around the corner. There is certainly a lot of money sitting on the sidelines and for the major fund managers, time is running out. The market needs a sign that money is flowing back in and that this is money that will remain permanent for the market to settle down to normal daily movements with less volatility.

We can all do without the excitement we’ve seen over the past month.

-AUD

dropped its interest rate -100bps to 6.00% - even more bad news for the carry trade. This is a huge cut with big implications and now rumors circulating about bigger cuts on other pairs. Expected was only ½ percentage point. These rumors could actually help support dollar weakness temporarily.London lost an astonishing 7.85%, and the rest of Europe bared a comparable 7.59% loss for the day. There are talks of coordinated efforts to cut interest rates by EUR, GBP and the US, in recognition of the problems. Let’s hope this will slow matters for all. The US Equity markets gained in late trading on this; would expect Europe and the UK to slow down losses on it as well, but not stop. Asia

is down again about 3% so far today. EJ hit the 135.00 target bounced off of it.AUD

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lost much of its gold correlation today based on the carry sell off, and given the current conditions; it may take a while to snap back into place.-The Dollar Index closed right AT 81.80, and we could start seeing a pullback here but right now still looking bullish. Next target is approximately 85.00.

-Bailout passed, but world indices continue to drop as conditions and outlooks worsen. Despite the plan, economies are going to have a very hard time pulling away from this one, including the US

. Investments are being liquidated on a global scale and much of this flows into the dollar, which accounts for 86% volume of all currencies traded (the “real” reason the dollar has gained so much strength as of lately)US

surplus compared to the rest of the world still large and investors continue to sell into the 84.00 target. Decline also a function of risk appetite decreasing, as investments move into cash and active speculators bet on this happening.-Gold continuing to fall due to a stronger dollar. Looking for a break of the major monthly trend line. Physical gold still selling at a big premium vs. futures, however, and some gold demand should be noted.

Well hold on to you hats today is Non Farm Payroll and reports say that we’re expecting bad US news. Looking back on the charts a slight upward correction is due but given the strong down trend it may appear as a slight blip on the screen. In either case it’s always best to take the day off and get back to it on Monday.

In case you haven’t noticed the US Dollar picked up another 2 cents in as many days and at this writing the Euro sits at 1.4231 off its July high of 1.60s. The GBP is resting at 1.7621 having to stretch its neck to see its July high of 2.0158 and the CHF continues its move touching 1.1007 yesterday.

The Asian session’s of late have been pretty trend based as well leaving the JPY’s high of 109.15 barely visible as it stands around 106.13 this morning.

All in all the set up continues for the most volatile move the market makes for the entire month. Enjoy the show!

The correction continues as we see the majors give back a good percentage of last years gains. Just when you thought we had reached a bottom the US takes a little bit more ground away from its counterparts.

To put it in perspective, the average daily range for the Eur is approximately 80 pips up or down and with the market swinging it’s usually held within a range of 200 to 300 pips. Since the 15^th of July when the Eur was at 1.6038 the Dollar has headed in one direction and gained back 1,557 pips or roughly 15 cents.

Against the GBP the tally is closer to 2,351 pips or the equivalent of more than 23 cents.

We needed to level the playing field and the Feds started looking for corrective measures last November when the housing market gave signs of trouble. Since that time we have bailed out mortgage companies, failing investment institutions and just plain printed money to boost our economy.

So far it seems to have helped but at what cost. Too little can starve a nation and too much can choke it.

The question on everyone’s mind is have we reached a temporary bottom? This may be the case due to the holiday weekend approaching and the possibility of a surge in oil as well as the continuing failure in the housing market. But one could look back over time and see that having the ability to flood the market with new dollars and bail out crumbling mortgage lenders has served the country well and will continue to do so long into the future.

With a moderate re-trace from the lows seen overnight the GBP and Euro are waiting on housing news to find direction.

The Asian market gave up a bit to the US and the markets opened “up” this morning.

At this writing the Euro stands at 1.4788 and the GBP is resting on 1.8535. Remember it was not that long ago that the Euros numbers were at 1.60 and the GBP a staggering 2.00, so corrections were in order.

There is still room for improvement and this is an election year here in the states so anything can happen.

The cruise ship is running at full steam! If you don’t think that a thousand points in 13 days is enough to spark a recovery than this country is destined to fold. I’ve seen charts before that have given hints to recovery’s but nothing in the past 6 years like this. Our daily charts go in only one direction and each time the market prepares for a bottom it continues a bit further

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The dollar has gained over 12 cents against the EUR and 11 cents against the GBP without looking back. Oil dropped and the stock market rose so let’s face facts:

We should see things brought to a simmer as we channel a bit and give way to any form of re-trace but this trader doesn’t see the levels we witnessed back in April.

At this writing the EUR is at 1.47 and still loosing ground while the GBP made an overnight effort to gain some back as it struggles to reach the 1.87 level.

Sit back and enjoy the cruise, with this being an election year the party has only just begun.

In case you haven’t been watching the charts recently, the Eur has lost $.10 against the dollar and the GBP has dropped $0.70. In the light of all the bad news pushed upon the US economy in recent times I begin to wonder where this rally came from.

Was Thursday’s report correct when it showed personal spending and personal income up? I thought we were in a recession. Isn’t that what all the hype is about? We’ve been sitting at the blackjack table and as you know, the house always wins. If you take to the game of chess the way I do than it’s no secret that it’s a game of hide and seek. The only difference here is that the Feds own the board and the chessmen.

Don’t get me wrong if it seems as though I’m a bit confused by the power of the positive numbers reported recently but who would have thought that that these numbers were possible given the so called poor state of affairs this country is witnessing. Middle class wage earners are visiting food banks and foreclosure looms in the background but the rally continues to unfold before our eyes.

The ship has most definitely left the harbor and is running at full steam but the question remains as to what course has been drafted to insure a safe journey and a comfortable return.

The Feds will decide today if there will be an increase in the interest rate and all are expecting “business as usual.” Signs of a recovery can be seen by the recent gains made by the greenback in the last week recovering more than $0.3 against most majors and as stated here a week ago the cross of EMS’s on the dollar index has held firm.

At this writing the EUR has slid just below support at 1.5508 with a possible eye on 1.5462. The GBP is resting on support at 1.9554 with signs of retrace slated for the upcoming New York session. One hour failures for the pairs are positioned at 1.5534 for the EUR and 1.9603 for the GBP.

I’ve mentioned before that you can’t turn a cruise ship on a dime but moves like this can help push the vessel away from the pier and at least get us out into open waters.

Helping the cause was a double dose of bad news from the U.K. with Industrial and Manufacturing production posting lower than expected numbers. Remember a month back when all eyes were on the record highs posted by the AUD? Take a look at the 4 hour chart and tell me where the bottom is. I guess it’s true when they say “too much of a good thing is never good.”

The dollar still has a long way to go but with bubbles bursting all around it’s fair to say that the party has just begun.