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The EUR USD continued lower for the week as business confidence dropped in Germany. Speculators reduced positions in anticipation of the ECB leaving rates unchanged at its next meeting.

On Thursday, the IFO Institute said its German business climate index dropped to 97.5 in July, down from 101.2 last month. Bund traders immediately started to buy back positions that were initiated in anticipation of an interest rate hike.

The charts indicate this market is going to go after stops under the last main swing bottom at 1.5610. After this break, the pair may find support at a retracement price at 1.5583. There are two up trend lines which have to be penetrated before this break takes place. These angles are at 1.5662 and 1.5647. Down trending support is at 1.5718 and 1.5878.

The fall in the U.S. stock market encouraged traders to cut back on their positions as long traders felt exposure to the risk of a prolonged break in the stock market. This decrease in risk appetite prompted the selling of higher-yielding assets financed by loans in Japan. Technically, the inability to follow through to the upside after Wednesday's change in trend to up produced a closing price reversal top. A break through 107.17 will confirm this top, indicating the potential for a break to 105.87 to 105.37.

The GBP USD fell sharply lower as a worse-than-expected Retail Sales report gave an indication that the U.K. economy may be close to a recession. The bearish retail sales news put a fear into traders who had assumed the consumer would be the key to an economic recovery in the U.K. High unemployment, surging inflation and a poor housing market are the key reasons for the U.K. consumer to cut back on his spending. In addition to the economic report, traders are still reeling from the Minutes of the Bank of England monetary policy meeting which seemed to indicate that the BOE is most likely to allow interest rates to remain unchanged. Technically, the GBP USD broke through retracement zone support at 1.9902 to 1.9842. The market would have to regain this zone to pick up strength. The key area to watch today is 1.9783 to 1.9787.

The USD CHF broke on the weakness in the U.S. stock market. Today's break in the stock market was caused by profit-taking in the financial stocks and the perception that consumers will be cutting back on spending. Traders reduced their demand for risk and reward by paring back positions in the USD CHF. Some traders feared a return to the bearish conditions seen earlier in the month. This encouraged a return to a safer currency like the Swiss Franc. Look for the start of a pullback to 1.0207 to 1.0161. The first line of support is 1.0250. The main resistance is at 1.0391 1.0396.

The USD CAD continued to remain firm as traders now seem to be convinced the Bank of Canada will leave rates unchanged. The poor performance in crude oil and gold markets is expected to continue to drive Canadian exports lower, making the Canadian Dollar weaker. It is going to take a highly volatile move in crude oil to make this market drop. The charts indicate a move to 1.0233 is likely. Strong support has been established at 1.0053.

The AUD USD broke in sympathy with the weakness in the New Zealand Dollar. Australian bond traders are now factoring in the possibility of an interest rate cut. Bond prices rallied on the news. This was a shift in the recent trader sentiment which called for the Reserve Bank of Australia to leave rates unchanged. Look for support at .9481 and .9474. Resistance drops in at .9530 and .9690. A trade through .9474 turns the trend down.

The Reserve Bank of New Zealand cut interest rates by a quarter point on July 24. This move was anticipated based on the pre-report sell-off. The NZD USD is at a six-month low and expected to move lower as Reserve Bank Governor Alan Ballard is already indicating that he may cut rates again if inflation eases. Financial traders are already pricing in another rate reduction in September. The factors leading up to this rate cut are a slump in consumer confidence and housing that may have pushed the economy into a recession. Technically, the market broke into a major retracement zone at .7427 to .7241. Additional support is at the January 22 bottom at .7382 and the October 22 bottom at .7364. Since the interest rate news was expected, do not be surprised by a short-covering rally if the market can regain .7427 on a closing basis.

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