The Week Ahead - Oct 10 GBP/USD - British Pound Dollar, American Session - 10/10/08 Shock and Awe for Markets All Around the World! More GBP/USD USD/CHF - Dollar Swiss Franc, American Session - 10/10/08 USD/CHF - Dollar Swiss Franc, European Session - 10/10/08 USD/CHF - Dollar Swiss Franc, American Session - 09/10/08 More USD/CHF The Week Ahead - Oct 10 USD/JPY - Dollar Yen, American Session - 10/10/08 USD/JPY Technical Analysis 10 October 2008 More USD/JPY

This week ended with the U.S. Dollar posting its biggest gain since 2005. It is hard to believe that just a week ago the U.S. Dollar closed weak after the Euro soared on a worse than expected U.S. unemployment report. Since then comments from the Fed and the Treasury helped turn the Dollar around to finish the week in a strong position.

On Monday, Treasury Secretary Henry Paulson said in an interview with CNBC that he would "never" rule out currency intervention. This comment packed some punch as the Euro had its largest decline in close to a month. The threat of an intervention put fear in the market especially since it has been rumored that the Treasury was the muscle behind much of the decline, which started in April.

After Paulson's comments, the Dollar received an additional boost from Federal Reserve of New York President Timothy Ginter who stated that the central bank is watching the Dollar.

On Tuesday, the Forex markets reacted swiftly and decisively after Fed Chairman Bernanke announced that economic risks have faded and implied that interest rates may have to go up to fight rising inflation.

Throughout the week, financial traders who bet on the direction of interest rates by committing to spread positions started factoring in the possibility of a rate hike on August 5. The sentiment rose throughout the week from 0% on June 6 to close to 60% on June 13. Traders also increased their bets that the Fed will raise rates in December from 67% to 96%.

Additional pressure was placed on the Euro as traders anticipated a string of positive comments from participants of the G-8 meeting, which was taking place during the last half of the week. Next week may start bullish for the Dollar as weekend comments from the G-8 are published.

At times this week, mixed comments from ECB members added confusion to the market. The confusion arose when one member said that the anticipated July rate hike would be the start of a series of interest rate hikes. By the end of the week, however, his comment was contradicted twice by other members of the ECB, who believed the rate hike was for July and not beyond.

Overall, the combination of the Fed and the Treasury comments had the effect of a verbal intervention. This strategy weighed on the Euro all week as it retraced its entire rally from late last week to close sharply lower for the week. Next week, expect to see a reaction to the G-8s statement, which will be released over the weekend. The statement is expected to be supportive to the Dollar. Chart watchers should note that a trade through 1.5282 would be bearish to the Euro with a strong possibility of a further decline to 1.46 over the next two months.

Bank of Japan Keeps Interest Rates at 0.5%

The USD/JPY continued to rally toward a major retracement area at 109.94. This price is expected to put up some resistance, but overall, the trend is strong and expected to work higher.

The Japanese Yen did not receive any support from the Bank of Japan as it voted to leave rates at 0.5%. With the U.S. threatening to hike rates, the 2-year Treasury Note over a comparable maturity Japanese security widened to 1.9 percentage points, up from 1.5 on June 6. The uptrend should continue as the interest rate differential is making U.S. denominated assets more attractive.