The Week Ahead - Oct 10 EUR/USD - Euro Dollar, American Session - 10/10/08 EUR/USD - 1.3609 Daily Market Outlook - Oct 10 More EUR/USD 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 ECB is expected to announce an interest rate hike of a quarter point to 4.25% on Thursday. With upside momentum already building, look for the EUR/USD to challenge the all-time high at 1.6019 after the hike. Based on the recent comments from ECB President Trichet, who stated that there's a risk of inflation "exploding," some traders are anticipating this to be the start of a series of interest rate hikes rather than a one time event. Talk is circulating that rates may rise into December.

Wednesday's ADP report showed that U.S. companies cut more jobs than economists had forecast. This weaker than expected report kept the Dollar on the defensive all day and caused financial traders in Chicago to reduce bets that the Fed would cut rates at their next meeting in August.

Over the past three weeks as the German interest rate market became more confident that rates would rise, the spread differential between two-year German Bunds and two-year Treasury Notes widened. This spread differential is making the Euro a more attractive currency than the Dollar.

There has been no real reaction from the Fed or the Treasury on this recent rally in the Euro. The Fed spoke the loudest most recently through its FOMC declaration when it failed to clarify its position on the future of interest rate hikes in the face of weakening U.S. economic data.

The Fed seems to be at a disadvantage at this time in relation to the ECB. The ECB is mandated to control inflation at a set rate of 2.0%. The Fed, on the other hand, has to battle inflation while trying to stimulate growth. At this time, the Fed's hands are tied, not only because of inflation and slow economic growth, but also because of the looming crisis in the financial sector. Although the Fed was able to facilitate the dissolution of Bear Stearns back in March, it has already warned banks and other financial institutions to raise their own funds. Although the Fed was unclear of its position on the future of interest rate hikes the rest of the year, it is very clear that it is not capable of enacting any decision until inflation subsides; the economy bottoms and the financial markets stabilize. Until all of these factors can be brought under control, look for a strong Euro.

Technically, the EUR/USD regained a key uptrend line at 1.5862 today. As long as this pair can hold above this price, look for a rally to challenge the all-time high at 1.6019.

The USD/JPY closed lower on Wednesday following a sharp late session sell off. Risk adverse traders quickly bought back short Yen positions placed yesterday during the reversal up. This action demonstrates how frightened traders are to be long U.S. equities. Continue to look at the stock market for direction.

Technically, the early session rally stopped near a 50% retracement level at 106.70 before selling off. The weak close has this pair in a position to test minor support at 105.48 to 105.58. Once this area is penetrated, look for a retest of the weeks low at 104.97. This market gets extremely weak under 104.86.

The GBP/USD fell sharply as housing problems were the center of attention as the U.K's largest homebuilders shares broke after failing to attract new investors. Another bearish factor was a report showing the U.K. construction industry had contracted in June at its fastest pace since 1997.

Mervyn King's comment, stating, "Although inflation is rising now, we will ensure that it falls back to the 2 percent target" supported the market for the past week, but the news about the floundering housing market should be enough to temper any talk of a Bank of England rate hike over the near term.