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EUR/USD - 1.4783 Daily Market Outlook - Aug 21 Market Moving News: EUR/USD - Aug 21 EUR/USD Technical Analysis 21 August 2008 More EUR/USD Chart of the Day - 8/21/2008 - GBP/USD GBP/USD Technical Analysis 21 August 2008 Market Moving News: GBP/USD - Aug 21 More GBP/USD USD/CHF - Dollar Swiss Franc, European Session - 07/08/08 Forexpros.com Daily analysis - 20.08.08 USD/CHF: Challenging a key level More USD/CHF

After a long holiday weekend, Euro traders picked up where they left off Thursday/Friday by selling the EUR/USD. Driven by the July 3 comments from ECB President Trichet, who shifted his tone from hawkish to dovish, sellers pushed the Euro back to close to 50% of the last rally from 1.5302 to 1.5909. This price was 1.5606.

In addition to the downside momentum created by Trichet's comments, the G-8 meeting in Japan may also have had some negative influence on market. Although the primary focus of the meeting is on curtailing the high price of oil, President Bush over the weekend reminded the world that he is looking for support for a "strong" Dollar.

The early weakness in the Euro was also caused by the release of a German Economy Ministry report showing German Industrial Production dropped 2.4 percent in May. This loss was the most in nine years and was below the forecast of a 0.3 percent gain. This report was one of the strongest signs that the economic weakness is rotating from the U.S. to Europe.

About midday, a risk aversion scare hit the stock market, as traders quickly dumped stocks after Fannie Mae and Freddie Mac fell on speculation that banks were unloading mortgage bonds. An additional report from Lehman Brothers indicating that both Fannie and Freddie needed to raise capital, helped to accelerate the decline. Traders, losing confidence in the U.S. financial system, began covering short positions.

Looking at the fundamentals, which have developed over the last week, the conclusion is the EUR/USD can be expected to remain range bound with trading on both side of the mid-point at 1.5651 of the main range of 1.5822 to 1.6019. The inability of the Euro to rally to a new high after the ECB raised rates on July 3 is a sign that the market is anticipating a more pronounced slowdown in the Euro Zone. Furthermore, the comment by ECB President Trichet citing "no bias" toward future interest rate hikes reaffirmed this conclusion.

As more and more weak economic data from the Euro Zone makes its way to the surface, traders will begin to realize that Trichet may have actually hiked rates to solidify the economic slowdown that was already in motion. Traders will be watching to see if there is indeed an economic slowdown rotation taking place. This will only become apparent if the U.S. can start to show some economic gains.

This is also a difficult time for the Fed, which has to primarily deal with accelerating inflation and an economic slowdown. Monday's action indicates, however, that the financial crisis is still an issue. Earlier in the year, the Fed warned that financial institutions have to raise their own capital. Based on how todays news affected the Dollar, it looks as if more is going to have to be done to support the financial markets or the Dollar may feel outside market pressure.

The USD/JPY started out showing signs of strength as traders opened the stock market higher overnight. Many traders felt the worst of the break was over in the stock market and decided to take on additional risk in front of the start of earnings season on Wall Street. Approximately midday, negative news in the Financial Sector regarding Fannie Mae and Freddie Mac turned the market down, forcing traders out of the stock market and into the Yen for safety. Despite the technically oversold stock market, the inability to shake the bad news should continue to attract sellers to the USD/JPY.

The GBP/USD fell sharply lower early in the trading session as more bad economic news made it clear that the Bank of England would not be raising rates in the near future. The Office for National Statistics said the U.K. factory orders fell 0.5 percent in May. The market was trading based on an unchanged report. This surprise coupled with last week's bearish housing report brought heavy selling to the Pound. About midday, the GBP/USD traded inside of a major support zone at 1.9708 to 1.9637. This move corresponded with the turn in the U.S. stock market and shorts decided to cover their positions. Expectations are for the fundamentals to continue to remain weak, but technical traders are likely to rally this pair back to 1.9828 to 1.9870 before new sellers step up.

The USD/CHF weakened considerably as financial sector issues broke the U.S. stock market, forcing traders to seek the safety of the Swiss Franc. There is a large amount of fear in the market as the U.S. economy fails to work its way out of the financial crisis, which has been lingering for almost a year. Lehman Brothers issued a report citing the need for Fannie Mae and Freddie Mac to raise capital to head off the large amount of mortgage selling by banks. Merrill Lynch and Citigroup are reportedly also looking for more capital. The Fed's focus has been on stimulating the economy without rocketing inflation. However, a further deterioration in the financial market structure may cause them to take some action. Unless this happens soon, continue to look for the stock market to suffer breakdowns, while the Swiss Franc benefits from risk aversion buying. The key support number to watch is 1.0130. A break through this level may send the market sharply lower to 1.0040 to 1.0013 rather quickly.

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