What a week so far has been for the British pound, with the currency plunging since yesterday, after it was revealed that more UK Banks are ready to fail due to the economic crisis and further speculation on what the BOE will do in the next meeting to tackle the serious economic deterioration! The fact that risk aversion hit the markets, due to comments by the World Bank that the global economy has shrunk to WWII levels and there is more to follow, made investors understandably wary about the economic future!

The EUR/USD has been trading within tight ranges since yesterday and not following pounds dive, however, the star of the day was EUR/GBP gaining more than 200 points on the back of the pound's extreme weakness. The euro seems to hold on to 1.2560 for now, however every attempt towards 1.2750 finds sellers quickly! The range for now is 1.2550-1, 2750 and a clear break of either level may show us the next target!

The GBP/USD opened above 1.4120 for the week, however the bad economic news from the UK banks plus renewed fears of traders regarding the UK's outlook forced traders to sell the British currency and important support levels got hit very quickly. As long as the pair trades below the important resistance level of 1.39, there may be further downside towards 1.35.

The economic calendar today has a few economic releases out of UK and Euro zone, with Manufacturing Production out of UK printing yet another really negative number and the drop in the sector has been worse since early 70s!

Later on, we have another speech by Bernanke in Washington and traders may want to monitor his words for further signs of what the FED is planning to do with its monetary policy. It has become clear to market participants that by lowering the interest rates down to practically zero, the FED has not yet managed to bring any kind of financial stability into the system and therefore the question arising now is what is the next move? Bernanke and co. will have a tough job to convince the government that US economy can stabilize over the course of the next months! With economic data coming out really negative almost every day and with the employment sector suffering, it will be crucial from now on to see the steps the Bank will take in order to improve the economic conditions!

The stocks have gained since early in the European session amid news that Citigroup posted its biggest quarterly gains since 2007. Investors welcomed the news, and now it will be interesting to see how the day progresses until the New York opening! It is clear that stocks are desperate to bounce back from recent lows and traders are doing their best to position themselves long, however in such a fragile environment when almost every day is hit by bad news, it is tough to maintain gains and hence the rallies are met with sell-offs!

So far, the things to watch today are the EUR/USD and a potential break on the upside if 1.2750 gives way, plus the GBP/USD and if it manages to break the important 1.39-1.3930. As long as the latter levels hold for the pound, it is very possible we'll see another leg down, with bad economic news printed earlier and also if dollar receives a lift from risk aversion later on€¦