EUR/USD hit another all time high at 1.5910 during this morning’s Asian session. The move was aggressive with stops being hit all across the board and carry trades being liquidated at a fast pace.

Last week we had plenty of action in all financial markets, with DOW JONES dropping hundreds of points and crude oil reaching 112. Dollar was clearly in the dumps all week and this is likely to continue at least until the FED meeting which takes place tomorrow.

The fear and uncertainty of investors is still visible and every time something happens in the markets, all carry trades get hit hard. Traders are clearly afraid to buy in the dips and until we have a clear signal that the recent crisis is finishing, yen will be the clear winner amongst currencies. Many speculate that Bank of Japan, might act to prevent further gains in their currency but with G7 being hosted in Tokyo this year that would be almost impossible for them to intervene.

The big news on Friday that the 5th largest securities firm Bear Stearns was in big trouble and very close to bankruptcy was taken badly from all market participants and we saw a large sell off being progressing in all markets.

Today markets were caught unaware, as rumours of emergency weekend meeting by the FED rate were actually true, with discount rate now being at 3.25. FED was scheduled to meet tomorrow and decide the future of interest rates; however with the Bear Stearns crisis the bank decided to act immediately. The move was followed by heavy dollar selling which placed EUR/USD at 1.59 in early hours.

Today we have TICS data out of the US and although is expected to be slightly better than last month, it is widely expected to print a negative number as most foreign investors clearly don’t support the US dollar. However whatever the number, the markets sentiment is so negative that won’t make a difference in the greenback. Also later this evening we have the NAHB housing market index which is expected to be unchanged.

EUR/USD is consolidating from earlier highs, but clearly still in an uptrend. Another leg up is expected until the recent top at 1.59 and a clear break of that level puts 1.60 in the game.

The question now is how high can the pair go in the coming days? The answer can be found in tomorrow’s FED meeting and if we see Bernanke cutting rates by more than 75 points then dollar will be collapsing to new lows. It is clear that banks priority is not to have a strong currency, but many are surprised at how low the US dollar had been in the last few days. Many analysts believe that an intervention of some short is coming at some point; however that point might be 1.60-1.63. Therefore until we see a clear reversal sign or a verbal intervention by government or other, is best either to be out of dollar positions or short the dollar with tight stops.

Let’s see how the markets react today and if the US opening sees further dollar selling before tomorrow’s meeting...