How Long Can the Dollar Remain Strong? Forex and Dow Jones recommended levels EUR/USD - 1.3590 Daily Market Outlook - Oct 7 More EUR/USD GBP/USD Technical Analysis 7 October 2008 Market Moving News: GBP/USD - Oct 7 GBP/USD Fundamental Outlook at 1500 GMT (EST + 0500) More GBP/USD USD/CHF - Dollar Swiss Franc, American Session - 06/10/08 USD/CHF - Dollar Swiss Franc, European Session - 06/10/08 Chart of the Day - 10/03/2008 - USD/CHF More USD/CHF

Forex traders went long the U.S. Dollar across the board in the major pairs as better-than-expected earnings by Well Fargo mortgage bank helped restore some confidence in the U.S. banking sector. Once this trend was set in motion, the Dollar received an additional boost when crude oil inventories rose above estimates causing a follow through break in this complex.

Although the shift in sentiment attracted traders to the Dollar, this still only has the appearance of a retracement as no major bottoms in the EUR/USD appear to be threatened at this time. Until the Euro starts making lower tops and lower bottoms can one call the trend down. Based on the current chart pattern, look for this break to continue to at least 1.5825 to 1.5774 before stopping. The key to this market turning bearish is going to be the secondary rally to test the 1.6038 all-time high. If the market is topping, it will fail on this test.

Supporting a potential failure and the first sign of a major top are the developing bearish fundamentals out of the Euro Zone. High energy and food prices are stifling growth along with the recent interest rate hike by the ECB. Additionally, economic reports are finally starting to confirm that slowing global growth is beginning to affect the Euro Zone countries.

In other news, the Fed Minutes reiterated the recent statements by Bernanke and other Fed members that the Fed is caught between supporting growth and curbing accelerating inflation. This is a sign that interest rates are likely to remain unchanged over the rest of the year. Already factored into the market was the news that the CPI rose in June from 0.6 percent to 1.1 percent. This was the biggest increase since 2005.

Be careful shorting too close to 1.5825 as a test of this price may attract new buying. Be patient and wait for a test of the 1.6038 top before initiating a counter-trend short.

Wall Street welcomed the bullish news from Wells Fargo mortgage bank as this stock shook off the recent downtrend and rallied close to 20%. The move in this stock spread throughout the financial sector helping the S&P 500 and Dow Jones Average produce a huge gain on the day. The rally in the stock indices took pressure off traders who had been taking hard losses in recent days. As confidence grew throughout the day, investors sold Yen to buy Dollars to take advantage of the bullishness.

After trading lower overnight, the USD/JPY recovered to post a closing price reversal bottom. A follow through rally on Thursday will confirm the short term bottom at 103.76. Based on the recent break, look for a minimum retracement to 105.76 to 106.23. New sellers may emerge in this zone especially if the stock market cannot continue its rally.

Like all markets that are in a down trend, the USD/JPY has to hold the bottom on the next retest. If a higher bottom can be produced, then a new round of buying will be triggered. A trade through 103.76 will negate the reversal bottom and set up the market for a move down to 102.16 to 100.64.

The GBP/USD traded in an inside range indicating that the market may be overbought at current levels. Fundamentally, traders are supporting the Pound because they anticipate the Bank of England holding interest rates steady. High inflation is driving traders to reach this conclusion. On the bear side, a weaker than expected unemployment report brought back talk of a recession. This news caused some financial traders to cut back on their long positions.

The Bank of England is in the same position as the U.S. Fed. Raising rates to fight inflation may stifle developing growth and cause more unemployment. Lowering rates to stimulate the economy is likely to accelerate inflation. Since some of the recent rally was caused by the U.S. financial turmoil, a return of confidence is likely to cause Pound traders to take off some of the disaster premium they have factored in. Based on this conclusion and the current chart pattern, look for a pullback to 1.5825 to 1.5774.