The Fed took another step in leading the U.S. out of the global credit crisis by implementing a $540 billion funding entity whose primary goal is to finance money market purchases of short-dated financial instruments such as CDs and commercial paper. This timely and aggressive move by the Fed sent a signal to the Forex markets that the Fed still has its sights on burying the trust and confidence problems that have plagued the global credit markets for over a month. The move by the Fed helped the Dollar rally sharply higher against the Euro. The Dollar's strength was also buoyed by perceptions that the European Central Bank (ECB) would make more aggressive interest rate cuts than the Fed over the next several months. Traders are expecting the Fed to slash rates another 25 basis points at its October 29 meeting while the ECB is expected to trim rates by as much as 1 percent over the next three to nine months.

The move by the Fed is just another step toward restoring confidence to the global credit markets. Reports show that preliminary moves by the Fed are starting to thaw out previously frozen credit markets. Banks and corporations are beginning to resume normal lending practices. Although the credit markets may be moving on renewed confidence, the stock market investors and consumers have yet to respond in a major way to the recent stimulus. This may mean that the Fed will have to make additional moves to instill confidence with these two important market participants. Look for more downside pressure for the EUR USD.

The GBP USD fell sharply lower as another negative economic report showed the economy worsening even more than expected. With the U.K. economy already in a recession, another bad report drove the Pound even lower as U.K. Manufacturing Confidence fell to its lowest level since 1980. The British economy is under tremendous pressure which should encourage more selling of the GBP USD. Currently the Bank of England (BoE) is battling a terrible housing market, weak employment and slower consumer demand. Traders are looking for another interest rate cut at its next meeting on November 6, but the Bank of England may be in a position to cut rates even sooner as it has the ability to control the size and duration of the current recession.

It looks as if the recent bailouts of U.K. banks and the BoE's aggressive funding of the financial system are working. Now the BoE must turn its sights on shoring up the economy. Do not be surprised if it follows the lead of the U.S. Fed and proposes an aggressive stimulus package to jump-start the economy. Look for more weakness in the British Pound until the Bank of England takes a more aggressive stance toward shoring up the economy.

The USD JPY fell on weakness in the U.S. stock markets. Traders in the stock market are more concerned about corporate earnings this week than with the credit issues, which is a sign that this market may be returning to normal trading practices. There is also a belief that the stock market needs one more successful test of the low before confidence is truly restored. The anticipated break should lead to more weakness in the USD JPY. Whether the break occurs or not, the stock market direction will dictate the moves in this pair.

The USD CHF is still firm but struggling at current levels. At times it shows signs that it is ready to launch a move through 1.16, but something seems to be holding it back. However, even if it breaks from the current level, the trend does not change unless 1.12 is violated. This indicates that breaks should be treated as buying opportunities. The aggressive moves by the Fed and the perceptions of economic weakness in the European economy should continue to support this pair over the next few months. Any weakness in the Euro Zone is likely to continue to affect the Swiss economy which is currently in a contracting phase. Look for buying opportunities.

The USD CAD surged to a new high for the year as the Bank of Canada cut rates by 25 basis points. It was not the rate cut, however, which drove the Canadian Dollar lower but the statement by the Bank of Canada that the economy is weakening to a point where more aggressive cuts would be needed later. Currently the Canadian economy is under pressure from the tremendous slide in commodity prices which account for about 70 percent of the Canadian economy. Furthermore, the tight credit market, a weak stock market and the lack of investment from foreigners also hurt the economy. Continue to look for a higher USD CAD as traders are pricing in the additional interest rate cuts.

The AUD USD could not hold on to early session gains after the release of the minutes from the last Reserve Bank of Australia (RBA) meeting. The minutes showed that the economy was under tremendous economic turmoil when the RBA lowered rates by 1 percent earlier in the month. The news hit traders particularly hard because it renewed doubts as to whether the Australian economy would be able to pull out of the current near recession over the short-term. This is leading to speculation that the RBA will have to continue to make aggressive interest rates cuts over the near future.

The NZD USD fell in sympathy with the Australian Dollar on Tuesday. Additional pressure came after the release of higher than expected inflation reports. Traders are beginning to price in as much as a 1 percent interest rate cut by the Reserve Bank of New Zealand (RBNZ). Look for more downside pressure after the RBNZ makes its announcement today. If it does not cut by at least 1 percent, this pair may rally, however. Watch the statement after the release of the cut to see if further cuts are indicated.

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