What a day we had yesterday, with currencies moving like a rollercoaster and the euro together with the pound moving down more than 300 points early in the European session, only to reverse all losses later on just before New York closing! The week has already started with heavy trading conditions being printed all across the board and it is likely to continue in that manner until tomorrow, which is a big day for the pound with the BOE rate decision and also Friday's payroll data numbers.

EUR/USD is trading higher since last night and the next level to watch is 1.3620 ahead of 1.3680. If the later level holds as resistance then the pair might fail to break towards 1.38 in the next days. Traders are wary of committing further either way as more important data is coming out of the US, with the ADP report today which may give us the first feel of how the payroll data will be.

GBP/USD is trading much higher since yesterday and it was amazing to see the currency bouncing with great ease against the dollar and the euro, with the BOE rate cut expected tomorrow. The question is not if the bank cuts, but by how much! So far we have seen the sterling losing against the dollar and the euro, making one wonder when we will see the bottom - if at all - in the next few weeks. The economic crisis is deepening in the UK, but that is not news to traders, so now the next big thing which will either make or break the pound is the interest rate decisions. A cut of just 50 points is fully priced in so therefore we are not expecting big moves if that occurs. However, let’s not forget the words of Mr. King a couple of weeks ago that the bank is considering zero interest rates if not less! Some analysts are even predicting that the bank will start to struggle with deflation sooner rather than later! All this for sure may put further burden in the pound's direction but the important thing for now is to see how the markets will play the whole thing.

Today the economic calendar saw the German unemployment numbers, which came out way higher than expected, which makes analysts almost sure that low unemployment in Germany might be a farfetched dream - at least for the coming months. The recession is deepening in Europe also and markets are waiting to see how the ECB will react in the next monetary meeting. So many comments out of ECB members in the last days is making it obvious to the traders that the bank will cut by at least 50 points in the next meeting, The question is if Trichet will want to take it a step further and cut heavily below 1%. I personally cannot see that happening immediately as the bank always promotes price stability and that won’t be the case if rates go under! However, desperate times need desperate measures and we know it as well as we witnessed all central banks cut heavily in the last few months!

In other markets, gold and oil both surged yesterday, with gold making a comeback together with the euro against the dollar and closing above 860 and oil just above $50 per barrel. The geopolitical tensions we see in Gaza together with supply issues in the oil and OPEC threatening to cut further is making traders buy heavily these days, however it will be important to see how the week unfolds and how the payroll data will influence the price of the commodities.

Let’s see what today brings and how the traders position themselves for the important events of tomorrow and Friday!