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The Week Ahead EUR/USD Fundamental Outlook at 1500 GMT (EST + 0500) EUR/USD - Euro Dollar, American Session - 29/08/08 More EUR/USD The Week Ahead GBP/USD Fundamental Outlook at 1500 GMT (EST + 0500) GBP/USD - British Pound Dollar, American Session - 29/08/08 More GBP/USD USD/CHF - Dollar Swiss Franc, American Session - 29/08/08 Market Moving News: USD/CHF - Aug 29 USD/CHF - Dollar Swiss Franc, European Session - 29/08/08 More USD/CHF

The three-day break in crude oil continued to provide support for the Dollar while sending the EUR/USD into a major retracement zone. Based on the main range of 1.5610 to 1.6038, the Euro was expected to see fresh buying on a break back to 1.5825 to 1.5774. On Thursday, this pair reached a low of 1.5783. The close off the low indicates that short-term profit-takers or fresh buyers entered the market. The current set-up suggests a rally back up to 1.5911 to 1.5941.

The next retracement up will have critical ramifications for the longer-term view of the EUR/USD. The new high this week to 1.6038 did not bring strong buying into the market, indicating the possibility of a top. The subsequent break stopped in the projected area. The next move up is critical. Based on the two-day break this market is expected to retrace back to 1.5911 to 1.5941. If the market finds sellers in this zone and breaks, then a secondary lower top will have been made. All that would be needed to turn the trend down would be a break through the swing bottom at 1.5783.

Higher energy prices, poor economic reports, and dropping consumer confidence are three reasons to believe the Euro Zone economy is beginning to weaken. Trichet's decision to raise rates to 4.25% in early July may have been the final blow to the economy.

During Thursday's New York session, the good news from J.P. Morgan helped relieve some of the bearishness which had been building in the Dollar; however, aftermarket news regarding a Merrill Lynch downgrade may be the catalyst to send the Euro higher overnight. Coupled with the Citigroup earnings report on Friday, more bad news can send the Euro into the key resistance zone mentioned earlier. This is the action to look for today.

The high correlation between the Euro and crude oil could be factor on Friday also. The down move in crude may have been too much too soon and a short-covering rally may be due. In addition, option expiration can cause an erratic volatile trade. If crude oil trades higher, it is likely to take the Euro with it.

In summary, watch for the EUR/USD to have bias to the upside on Friday, with an objective of 1.5911 to 1.5941. Citigroup news and crude oil are expected to be the catalysts which could help support a rally.

The USD/JPY traded higher on Thursday as traders welcomed the friendly news from J.P. Morgan and lower crude oil. The news from J.P. Morgan, better-than-expected earnings, helped ease some of the concerns about the banking sector. Traders were relieved as the good news lightened up concerns that credit losses will cut into bank earnings.

Traders flocked to the USD/JPY sending it beyond its expected retracement zone at 105.76 to 106.23. The actual high at 107.08 may have been too much for this market at this time, so expect a retracement down to solidify the recent bottom at 103.76. Based on the short-term range, look for a pull-back to 105.76 to 105.25. Negative news about Merrill Lynch, which came out after the markets closed, may trigger the start of the break overnight. Any bad news from Citigroup or higher crude oil on Friday may break the USD/JPY further into the retracement zone. Buyers will have to show up in this zone or the downtrend will resume.

The GBP/USD has been trading firm this week buoyed by lower crude oil and the higher stock market. Traders have also been relieved that the inflationary news is lessening the possibility of an interest rate cut by the Bank of England.

If support collapses, then look for a retracement to 1.9902 to 1.9842. Additional support comes in on a Gann angle at 1.9908. On the upside, this market is trading slightly above its retracement zone. A trade under 2.0002 is likely to attract selling pressure down to 1.9880. The lack of buyers at current levels is probably the best explanation for a break from current levels.

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