Overnight Forex trading may be light as investors are expected to stand on the sidelines ahead of the early morning interest rate announcements by the Bank of England and the European Central Bank. The consensus is for the Bank of England to cut by 100 basis points to 2.00% and the European Central Bank to slash rates at least 50 basis points to 2.75%. Traders should be aware of the possibility of greater than expected cuts as the BoE surprised the markets in November with a 1.5% cut. Besides the interest rate news, traders should pay attention to the central bank language released with the reports. Of particular interest will be how aggressive these two central banks will be in the future.

U.S. economic data continued to show a weaker economy but that did not faze traders who still preferred a long Dollar position. The Fed's Beige Book revealed weakness in all areas of the economy. Housing, mining, wages, and employment were down in all Federal Reserve Districts.

Forex traders should pay close attention to the Chinese Yuan over the next few days. U.S. Treasury Secretary Paulson is in Beijing to discuss China's maintenance of a strong Yuan. It is important at this time that the U.S. and China cooperate and help each other through the current economic crisis. China has a U.S. Dollar surplus of at least $2 trillion and has become the biggest foreign holder of treasuries. The talks that will be taking place are also expected to encourage Chinese investment in U.S. companies, particularly the U.S. automakers.

The EUR USD was under pressure most of the day following the release of a worse than expected Euro Zone Retail Sales report. This report indicates that the economy is still weakening. Some traders feel that this report may cause the European Central Bank to cut rates by more than the consensus of 50 basis points. At one point during the trading session the Euro rose with the U.S. stock market, but backed off later as the market awaited news of a Fed bailout of the Big 3 automakers. Trading is expected to be light ahead of the early morning release (7:45 am EST) of the ECB's interest rate decision.

The GBP USD traded lower throughout the day because worse than expected economic news is leading traders to believe that the Bank of England will cut rates to 0% by early next year. Selling pressure hit the Pound from the opening on Wednesday because of a weaker-than-expected U.K. Services report. Although the Bank of England is expected to cut interest rates to 2.0% at 7:00 am EST, many traders are already anticipating the BoE dropping all the way down to 0% during the first quarter next year. High unemployment, falling housing prices and a collapsing mortgage market are the main reasons to expect more aggressive action by the Bank of England.

The strong rally in the stock market triggered another rally in the USD JPY as traders decided to take on more risk. Bank of Japan Governor Shirakawa once again subtly threatened intervention when he warned earlier in the week that "abrupt fluctuations" of the Japanese Yen are "undesirable." The BoJ is becoming extremely defensive each time the Yen goes up because each rise in the Yen hurts exports. Lower exports are causing Japanese corporate profits to drop.

The Swiss National Bank is not scheduled to meet until December 11, but may decide to cut its rate early in unison with the Bank of England and the European Central Bank. As the Euro Zone continues to weaken, so goes the Swiss economy. In addition, Swiss Banks are also under pressure. Despite efforts of the SNB to remove toxic assets from the books of major banks, depositors are leaving the banking system. Continue to look for downside pressure as global investors still consider the U.S. Dollar to be a much safer place to investment than the Swiss Franc.

Besides pressure from falling gold and crude oil, the Canadian Dollar is now feeling the pressure of fallout from Prime Minister Harper's threat to suspend Parliament to stave off defeat from the opposition party. The USD CAD gained on the news that Harper may be voted out of office by a unified opposition party. This political uncertainty is coming at a time when Canadian exports are dropping because of low demand and the economy may be contracting because of the global recession. Commodity prices have dragged down the Canadian economy to a point where the Bank of Canada is now considering a 50 basis point cut on December 9.

The Australian Dollar is still finding support despite news that economy grew at its slowest pace in eight years during the third quarter. In addition, the 1% interest rate cut by the Reserve Bank of Australia earlier in the week has been accepted without a downside reaction. This may be because of the aggressive intervention by the Bank last month. Traders may be afraid to sell the Aussie at current levels. Although the domestic economy is expected to weaken further, traders seemed to be more interested in the higher yielding assets in Australia instead of the economic news. Look for higher prices if investors desire more risk.

The Reserve Bank of New Zealand cut interest rates to 5%. Despite being in a deep recession, the Bank feels that only small cuts will be possible in the future. Its official statement read "some further but significantly smaller reductions in interest rates may be warranted." Although little economic growth is expected in 2009, inflation is still an issue. The RBNZ inflation target is 1% to 3%, but it feels comfortable at 1.5%. This is why the RBNZ will have to be careful cutting rates in the future. The markets are reacting as if the rate cut was already priced in. With the dire economic news out of the way, look for the New Zealand Dollar to rally if trader appetite for risk returns.