The Bank of England cut rates by 25 basis points to 5.25%. This action was anticipated, however, the subsequent sell-off was not. The BoE acted as expected due to the consumer-led slowdown in the economy. Further cuts are expected as long as there are no inflationary signs, given the current state of the economy.

Technical Commentary: Major support failed and buyers failed to materialize in GBP at the .618 retracement support at 1.9576. The market is now set up for a test of the recent bottom at 1.9336. A failure to hold this price is likely to trigger a further decline to 1.9103. Longer-term traders should begin to focus on the big picture. The 2006 – 2008 range is 1.7047 to 2.1159. This market will retrace this major range on a pullback to 1.9103 – 1.8618. On the upside, the current short-term oversold condition could set up for a retrace to 1.9671.

The EUR fell to two-week lows as ECB commentary highlighted the forecast of a possible slowdown of European growth. Despite holding rates steady as expected, the ECB surprised the market with commentary, which indicated an interest rate cut later in the year is likely should the slow growth continue. The key fundamental to watch is the Euro Zone growth rate. A continuing slide in this indicator is likely to pave the way for lower rates. Most of the blame for the slowdown was placed on the weakness in the U.S. economy. The Euro has lost about 2.2% this week, making it the largest weekly decline since August 2005.

Technical Commentary: The major retracement price at 1.4589 failed to hold as the EUR plunged lower. This action puts it in a position to challenge the recent bottoms at 1.4363 and 1.4309. Breaking 1.4309 turns the main trend down on the weekly chart and indicates more downside is likely. Penetrating this 1.4309 will also confirm the developing double-top formation. Given the current short-term oversold condition, watch for a retracement to 1.4695 – 1.4756. If this trend is going to turn down soon, then this area should attract new selling interest.

The JPY had a strong rally today following the early morning test of the main bottom at 105.71. Look for some minor resistance at 107.72. The main trend remains down, however, until 107.88 gets taken out. A trade through the price is likely to trigger a further rally to 109.82. Given the recent tight trading range, expect strong volatility evidenced by expanding ranges. The market must continue to make higher bottoms in order to support this developing rally. 106.86 must hold if tested. There is talk of a possible BOJ intervention to defend the JPY making the rounds. This action would be the trigger for the breakout rally over 107.88.

The CAD also fell to two-week lows. The fear of a global economic slowdown in commodity prices triggered CAD selling throughout the trading day.

Technical Commentary: The short-term upside objective was met at 1.0128 today. This completed a 50% retracement of the 1.0378 to .9872 range. Should 1.0128 hold as a near term top then expect a pullback to 1.000. With the market trading between 50% retracement points, continue to look for two-sided trading until a major support or resistance price is taken out. Clearly, 1.0125 is controlling the short-term direction of the market. Regaining this level will be a sign of higher markets to follow. With 1.0185 the next upside target.

The rally, which restarted, last week's reversal bottom continued today as the CHF moved sharply higher. Following some early morning weakness, the CHF retraced higher to take out two day’s worth of highs. The minimum upside objective is 1.112. The ultimate upside target of the current rally is a 50% retracement of the last major break at 1.116, followed by the .618 retracement to 1.126. Profit-taking or new selling may surface in this price zone. Look for the market to continue to back and fill as it tries to establish a higher bottom formation. The first retest would be to 1.091.

The early morning decline in U.S. equities markets was believed to be the cause of selling in the AUD. Chatter throughout the day focused on trader liquidation of high yielding assets.

Technical Commentary: The downside pressure continued today as the AUD reached .8873. This area triggered some buying interest, setting up a potential retracement to .8986. If the trend is indeed ready to turn down after the minor top earlier this week at .9099, then look for the retracement to .8986 to be a selling opportunity in anticipation of a break to .8805.

The jobless rate in New Zealand fell to a record low. Speculators bought NZD based on indications that the central bank would be refraining from cutting interest rates over the near term.

Technical Commentary: Despite the sell-off earlier in the week, the NZD has recovered nicely, putting it in a position to challenge the recent high at .7966. Take a watch and see approach at current levels as the market is now in a zone which has featured four tops. Short sellers may surface if there is any hesitation on this current rally. The downside objective of this potential four-top formation remains .7674 - .7605.

This week's reports include: U.S. December Wholesale Inventories (2/8, 10:00 EST).

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