Despite rallying to a record high, the EUR/USD looks vulnerable to a break from current levels. The move through the old top at 1.6019 to 1.6038 looks more stop than buy driven. Like the top in April, there was no follow through to the upside after the breakout and the market closed below the old top, indicating that the selling was greater than the buying at current levels.

Besides the chart pattern and the price level, long-term investors may have been considering the recent change in the fundamentals and sold out positions as a result. High energy prices have been weighing on the Euro Zone economy and slowing growth. The recent ECB tightening in the wake of this slowing growth seems to have choked off economic expansion even further. If you recall, the decision to raise rates by Trichet in early July was not a popular decision, as evidenced by a less than unanimous vote by the ECB. Furthermore, there are now mounting signs that slowing global growth is wearing on the Euro Zone countries. Among the major signs of a weakening economy was Tuesday's ZEW Center for European Economic Research report showing a decline greater than forecast.

Based on the short-term range of 1.5610 to 1.6038, look for a retracement to 1.5824 to 1.5773. If the Forex markets can put the U.S. financial crisis behind it, then traders will be forced to look at the fundamentals and most likely decide to sell the EUR/USD.

The huge break in the USD/JPY as a result of the sell-off in the U.S. stock market may have been overdone as the stock market recovered late in the day. The expanded range and volatility may have been capitulation of the recent down move, signaling the need for a short-covering rally. Besides the weak stock market, traders were buying Yen on perceptions that the Bank of Japan would be more likely to raise rates before the Fed. A stock market recovery today will likely bring in profit-taking, which may trigger a rally to 105.95 to 106.37. If buyers or profit-takers do not appear, then look for this market to continue down to a major retracement zone at 102.16 to 100.64.

The GBP/USD surged to an almost four-month high on stronger than expected inflationary news out of the U.K. Financial market traders in the U.K. are taking this as a sign that the Bank of England is in no position to lower rates and at the least will leave rates unchanged at its next meeting. The BOE's hands are tied because raising rates from current levels would most likely stifle any economic growth which is taking place. A deepening housing situation is the U.K.s worst problem. So far there has been no evidence that the U.S. financial crisis has reached the same proportion in England. Despite the bullishness of the Pound, this market exceeded most expectations on Tuesdays rally and could be set up for a profit-taking break. Based on the current short-term range, do not be surprised by a break back to 1.9902 to 1.9842.

The USD/CHF fell sharply to the downside target at 1.0013 and posted a low at 1.0010 before profit-takers and bottom pickers came in to stop the break. This pair is experiencing weakness as traders are dumping U.S. Dollars from the stock market and seeking the safety of the Swiss Franc. The size of the break indicates a possible "blow off" break as it exceeded the average of the recent daily ranges. This could be an indication that the weakest long has been driven out, setting up the USD/CHF for a short-covering rally. Now that the market has reached its downside objective, watch for the start of a possible short-covering rally to 1.0181 to 1.0221.

The Bank of Canada decided to leave interest rates unchanged at 3.0% on Tuesday. Although inflation is expected to remain high, the core inflation is well within its limits. Traders continued to sell the USD/CAD on the weakness in the U.S. economy and the mounting stock market losses. The Canadian economy seems to be weathering the financial storm in the U.S. making the Canadian Dollar a much more attractive investment. The sharp drop in crude oil caused an intraday technical bounce after this pair traded down to par. Further weakening in the crude oil complex could lead to a short-covering rally. Oversold conditions are also becoming a factor. Both technical and fundamental traders are looking for reasons to cash in on the recent break from 1.0240. Watch for the start of a possible rally to 1.0120 before new sellers step up.

The AUD/USD moved to a new multi-year high as traders are chasing the 7.25% yield in Australia. The weak U.S. economy and deepening financial crisis is making the Aussie a much more stable investment. Look for this trend to continue until the U.S. stock market bottoms and stabilizes. Long-term traders continue to believe that this market is headed to par by the end of the year. According to the charts, this market is moving too much too soon and is vulnerable to a correction to .9662 to .9618.

The main trend turned up in the NZD/USD on a trade through .7662. The follow through to the upside indicates that it was real buying other than short-covering. Look for this move to continue to .7830 to .7921 before traders decide to take profits. A U.S. stock market bottom and rally could trigger profit-taking before this level is reached, however. Long traders have to be aware of both the position on the chart and the U.S. stock market. As long as the Reserve Bank of New Zealand leaves rates at 8.25%, continue to watch for higher markets as traders seek this great return.

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