The U.S. Dollar started the New York session on the strong side after the Bank of England and the European Central Bank voted to leave rates unchanged. At about the same time, Wal-Mart surprised stock traders with news the economic stimulus spending spree may be over by posting same store sales at 3% rather than the forecast 3.4%. This immediately put pressure on the stock indices. Although this was another sign the U.S. economy is slowing, the Dollar pushed higher throughout the day.

Some of the gains in the Dollar were pared when Initial Claims rose to their highest level in over six years, but there was no follow through to the downside. Later in the morning, however, the Dollar was able to pick up strength as the National Association of Realtors showed pending Home Sales for the month of June gained back some of last month's sizeable decline.

Throughout the day the Dollar's upside momentum increased even though AIG reported a loss of $5 billion, Citigroup announced a settlement with federal and state regulators, and crude oil poked up above $120 per barrel. The inability to break the Dollar in the face of negative financial news is a sign that big traders must be committed to the long side and were not going to be fazed by the negative news.

The 30-year government bond auction was well received as it drew stronger-than-expected demand. This action contributed to the strength in the bond market and put pressure on interest rates. The Dollar should have weakened on the lower rates and perceptions that bond traders were seeking the safety of the treasury market rather than the more risky stock market.

Near the end of the day the Consumer Credit report showed an increase in borrowings as many banks closed lines of home-equity based credit. Consumer's either borrowed more heavily on credit cards or used their home-equity lines of credit before they were rescinded. Finally at the close Moody's announced that it may cut ratings on American Express.

Surprisingly in the face of multiple negative news stories and fundamental reports, the Dollar was able to hold on to gains with the exception of the Japanese Yen. One has to conclude that traders have absorbed the problems in the credit markets and are not as sensitive to rebel attacks causing crude oil short-covering rallies. The Dollar was even able to withstand news of more job losses and lower interest rates. Today's action was clearly a sign the Dollar is bullish for the long-run. Although there are going to be periodic short-covering rallies, the safest trade is to sell these rallies if given the opportunity.

The ECB left interest rates unchanged on Thursday. Although there are still concerns about wage inflation, the concern is now the developing economic slowdown. Consumer and business confidence is down along with manufacturing, and the fundamentals are expected to continue to weaken. The charts indicate the market is in a position to challenge the recent bottom at 1.5302. The real fireworks could begin in this market when the major bottom in March at 1.5282 is broken.

The USD JPY posted a loss on Thursday mostly from the lack of buyers as the U.S. stock market plunged on negative economic news. Traders were reluctant to borrow Yen to purchase stocks as economic uncertainty prevailed. Longer-term, the combination of the weakening Japanese economy and the strong U.S. stock market should help the USD JPY rally. Short-term this market has an upside objective of 109.94. This market is likely to feel some downside pressure on a trade through 107.27

The GBP USD fell as the Bank of England decided to leave borrowing rates at 5%. Given the state of the economy, some traders were hoping for a rate cut to help the U.K. avoid a looming recession. Once again the BoE has decided that a "hands off" approach may allow the economy to right itself. Based on the aggressive selling, traders do not seem to think that this approach is working or is going to work. On the downside, this pair closed in a position to test major spring lows at 1.9408, 1.9360 and 1.9336. A break through these levels is likely to lead to an acceleration down to a March 2007 bottom at 1.9181.

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The USD CHF rallied despite the weak stock market and finally reached a major 50% resistance zone at 1.0630. The test of 1.0630 was met with some profit-taking and very little follow through. This may indicate the start of a short-term break. Regaining 1.0630, however, indicates strength with the potential to rally to 1.0810 to 1.0865. A strong stock market may not be the only reason to buy the Dollar against the Swiss. Traders must be looking for weakness to emerge in the Swiss economy. Watch for news regarding an economic slowdown in the Swiss economy to trigger another leg higher.