The poor economic outlook for the U.S. economy kept downside pressure on the U.S. Dollar throughout the day. Traders reacted negatively toward the Dollar following the release of the U.S. Consumer Price, Housing Starts and Building Permits reports. The economic releases this week are continuing to indicate that the U.S. economy is in a deepening recession. Late in the trading session the minutes of the Fed's last FOMC meeting in October confirmed that the Fed is looking for the current economic contraction to last well into 2009.

In the afternoon the U.S. equity markets took a turn for the worse and plunged sharply lower. This break triggered a flight to quality rally to the treasuries. Global traders pitched the higher risk Euro currency for the safety and liquidity of the Dollar.

The British Pound continued its strength against the U.S. Dollar today. This current up move started on Monday as traders began to defend the 1.50 area. Although the closes in the GBP USD have been higher this week, the trend remains down as no major swing tops have been violated. As of today's close the current rally has all of the appearances of a short-covering rally designed to relieve some of the recent downside pressure. Overnight the Bank of England released the minutes from its last meeting. The report showed that policymakers voted unanimously to cut interest rates by 1.5% in October. Further dialogue in the report indicated that the BoE was prepared to slash by 2.0%. Based on the U.K.'s current economic situation, expectations are for another interest rate cut in December. Traders have to remember that the Bank of England started cutting rates late in the current cycle which means it has room to slash.

The Japanese Yen rallied sharply higher versus the U.S. Dollar on Wednesday as the selloff in the U.S. equity markets sent traders scrambling for the safety of the Japanese Yen. At this time the world considers the Yen to be a better currency than the Dollar. Japanese investors are selling their stocks and bonds and buying Yen. Traders have to be aware that the Bank of Japan is seriously considering an intervention while increasing money supply to dilute the value of the Yen. The stronger Yen is hurting automobile export sales. Toyota has lowered its profit forecasts for 2009. Nissan is looking at the possibility of "zero" profits in 2009. These concerns are likely to keep downside pressure on the USD JPY.

The USD CHF rallied higher on Wednesday as the strong uptrend continued. News that the Swiss economy is nearing a recession helped put downside pressure on the Swiss Franc. Investors continue to lead the Dollar higher as traders are selling Swiss and seeking the safety of the U.S. Dollar. Continue to look for this uptrend to continue. Traders should be watching Libor at this time. Lower Libor rates are likely to encourage the Swiss National Bank to consider another interest rate cut at its next meeting in December.

The USD CAD traded sharply lower. The global recession is threatening the Canadian export business as demand has dropped for Canadian-linked commodities such as wheat, lumber and crude oil. The plunging U.S. stock market also helped push the U.S. Dollar sharply higher as traders dumped the Canadian Dollar for the safety of the U.S. Dollar. Investors are now becoming concerned that the U.S. recession will spread north of the border to Canada. Canadian economic reports should be watched carefully for any weakness. The Bank of Canada is in a position to cut interest rates at its next meeting in December if economic reports indicate the start of a recession.

The Aussie Dollar was under pressure on Wednesday due to the drop in commodity and equity prices. Falling commodity prices are a drag on Australian exports and are hurting the economy. Trader aversion to risk is triggering selling interest as traders are currently seeking the safety of the U.S. Dollar over the higher return offered by Australia. Continue to look for more downside pressure, but be aware that the Bank of Australia intervened at .6350 and .6600.

The same fundamentals have been a drag on the NZD USD. Lower commodity prices have hurt the New Zealand economy. There has been no strong demand for the higher-yielding New Zealand assets. Traders want safety first at this time. Unless normal risk demand returns soon to this market, look for lower prices over the short-run.

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