NEWS / Foreign Exchange

The US economic calendar begins on Monday with the release of the Chicago PMI report for September

Past Week's Data and Events

The dollar took a hit last week amid fears of recession. Given that the Group of Seven finance ministers and central bankers said the credit-market rout will slow economic growth and kept mum about the weakness of the dollar, its weakness should persist. And keep an eye on the sliding carry trades.

United States

The dollar plunged on Thursday and Friday amid heightened expectations that the US economy is quickly headed for recession and that the Federal Reserves will be forced to cut borrowing costs as early as the end of the month.

Two US lenders said earnings were affected by the subprime loans crisis and the Federal Reserve said the housing slump may continue, while three leading banks had low earnings amid trading losses. Surging oil prices are not helping the outlook of the US economy.

Standard & Poor's expects the Federal Reserve to further trim interest rates in December or January at the latest, as the economy keeps slowing. But they could do that as early as this month. Meanwhile, Federal Reserve Chairman Bernanke said the housing slump may drag on through 2008.

The New York Fed's Empire State general business conditions index rose to 28.75 in October from 14.7 in September. The index on new orders rose to 24.97 in October from 13.56 in September, while the reading on shipments increased to 28.59 in October from 5.09 in September.

Industrial production expanded 0.1 percent in September, while capacity utilization was unchanged at a smaller-than-expected 82.1 percent.

The Treasury's capital flows report showed that net sales of long-term securities hit a record $69.3 billion.

Housing starts contracted a mammoth 10.2 percent to an annual rate of 1.191 million homes in September, the slowest since March 1993. On an annual basis, starts contracted a whopping 30.8 percent. Meanwhile, building permits in September 2007 were 1,226,000, down 7.3 percent from August 2007 and down 25.9 percent from September 2006.

In addition, home builder sentiment fell 2 points to 18 in October, the lowest reading since the gauge started in January 1985, according to the National Association of Home Builders.

The CPI rose 0.3 percent in September after a 0.1 percent decline in August. The core CPI rose 0.2 percent for a fourth month.

The Philadelphia Federal Reserve Bank's general economic index fell to 6.8 in October from 10.9 in September.

The Conference Board's index of leading economic indicators gained 0.3 percent in September, but the decline in August was revised downward to 0.8 percent.

Elsewhere, initial jobless claims rose by 28,000 to 337,000 in the week ended October 13.

The Eurozone

The euro/dollar climbed up to a new all-time high last week.

The ZEW index of investor and analyst expectations stayed at minus 18.1 in October, the same as in September.

Japan

Dollar/yen fell last week on profit taking on carry trades. More selling should follow.

Theindustrial production report for August was revised upward to 3.5 percent from 3.4 percent.

Meanwhile, the tertiary sector expanded 1.4 percent in August after contracting 0,4 percent a month earlier.

The UK

The pound struggled higher late last week. That was after falling on Tuesday as the CPI unexpectedly held at the lowest since March 2006 at 1.8 percent in September from a year earlier, the same as August.

Claims for jobless benefits dropped 12,800 from August to 835,800. However, the unemployment rate as measured by International Labor Organization standards was 5.4 percent in the three months through August.

Retail sales rose 0.6 percent in September after gaining 0.7 percent in August.

Canada

Dollar/Canada marched lower amid soaring oil prices.

The composite leading indicator rose 0.4 percent in September from 0.3 percent in August, as a result of a sharp jump in housing starts, strong consumer spending and a rebound in the stock market.

The Bank of Canada left its main interest rate unchanged at 4.5 percent, as expected, and said there may be a slight risk that the surging Canadian dollar and credit-market turmoil will affect inflation more than rising consumer spending.

Canadian CPI accelerated 2.5 percent in September to the fastest since May 2006 from 1.7 percent in August. Core CPI slipped 2 percent from a year earlier from August's 2.2 percent.

Switzerland

Dollar/Swiss made an undecided decline last week.

Australia

The Aussie/dollar edged lower last week and long carry trades were slightly lightened. This process should continue.

This Week's Data and Events

United States

The US economic calendar begins on Monday with the release of the Chicago PMI report for September.

Existing homes report for September is due on Wednesday.

Thursday will see the release of the home sales report for September.

Durable goods orders report for September is due on Thursday as well.

The University of Michigan report is due on Friday.

The Eurozone

The Eurozone agenda opens on Tuesday with the release of the French consumer spending for September, the Italy retail sales for August and the Eurozone industrial orders for August.

The mighty Ifo report of German business confidence for October is due on Thursday.

The Gfk consumer confidence report is due on Friday.

Japan

Japan??™s economic calendar begins on Wednesday with the release of the trade balance report for September.

The CPI data and the industrial production report for September are due on Friday.

The UK

The UK economic calendar only contains Monday??™s CBI orders for October.

Canada

Canada??™s agenda features only the retail sales report for August on Monday.

Overview

Euro/dollar

Last week's range: 1.4144 ??“ 1.4318 (Up)
Previous range: 1.4015 ??“ 1.4240 (Mixed)

Euro/dollar edged up to a new high for its lifetime and this process should last longer as the uptrend continues.

Strongresistance is seen between 1.4400 and 1.4420. Above 1.4450, strongresistance is seen only at 1.4580. Distant resistance is at 1.4665.

Below1.4280, euro/dollar still has support at 1.4210.  Only a break below1.4170 would signal a more sustained decline toward the distant supportat 1.4015. 

NEAR-TERM:Slightly bullish
MEDIUM-TERM:Bullish
LONG-TERM: Bullish

Dollar/yen

Last week's range: 113.26 ??“ 114.44 (Down)
Previous range: 116.82 ??“ 117.79 (Up)

Dollar/yen sank aggressively last week and this weakness should last amid profit taking on carry trades.

Initial support is at 113.26. Strong support is at 112.90 from a 50-point pivot that targets 113.40 and 112.40. There is a pivot low at 111.60 which is also a 50-point pivot, which targets 112.10 and 111.10.

Above 114.60 there is strong resistance at 115.50 from another 50-point pivot, which targets 115.00 and 116.00. . Distant resistance now follows at 116.85 from another 50-point pivot that targets 116.35 and 117.35.

NEAR-TERM: Slightly bearish
MEDIUM-TERM: Mixed
LONG-TERM: Bearish

Sterling/dollar

Last week's range: 2.0471 ??“ 2.0550 (Down)
Previous range: 2.0247 ??“ 2.0475 (Mixed)

Sterling/dollar fell from a three-month high last week but remains near its recent highs. More information is still needed, but much weakness is unlikely here.

Initial resistance is at 2.0550. Then there is a pivotal high at 2.0654. Next level is 2.0735. Distant resistance is now perched at 2.0845.

Immediate support is seen at 2.0465. Next level is at 2.0400. Below 2.0345 there is distant support at 2.0285.

NEAR-TERM: Mixed
MEDIUM-TERM:Slightly bullish
LONG-TERM:Bullish

Dollar/Swiss franc

Last week's range: 1.1657 ??“ 1.1858 (Down)
Previous range: 1.1760 ??“ 1.1894 (Up)

Dollar/Swiss fell late last week and should push further down. This pressure should last.

Immediate support is at 1.1600. Below 1.1585, there is support at 1.1495. Distant support follows at 1.1410.

Initial resistance is at 1.1735. Above 1.1820, distant resistance is at 1.1894.

NEAR-TERM: Mixed with downside bias
MEDIUM-TERM:Bearish
LONG-TERM: Bearis

Dollar/Canada

Last week's range: 0.9634 ??“ 0.9739 (Down)
Previous range: 0.9723 ??“ 0.9898 (Down)

Dollar/Canada fell for the sixth week to a new 31-year low of 0.9634. Again, the weakness should last but at a slower pace decelerate because of the severely oversold conditions.

Below 0.9634, there is support at 0.9573. Distant support follows at 0.9450.

Initial resistance is at 0.9755. This is followed by 0.9800 and 0.9860. The next level is at 0.9980.

NEAR-TERM: Slightly bearish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish

Euro/yen

Last week's range: 163.71 ??“ 167.72 (Down)
Previous range: 164.15 ??“ 167.63 (Up)

Euro/yen fell from a near three-month high of 167.72 and formed an incipient bearish reversal pattern. The downside is now favored.

Immediate support is seen at 161.60. This is followed by 160.70. The next level is now seen at 159.25. Distant support is at 158.50.

Above 164.25 the euro/yen faces resistance at 165.45. The cross then has distant resistance is perched now at 167.70.

NEAR-TERM: Slightly bearish
MEDIUM-TERM: Slightly bullish
LONG-TERM: Bullish

Euro/sterling

Last week's range: 0.6948 ??“ 0.7002 (Mixed)
Previous range: 0.6893 ??“ 0.7008 (Up)

Euro/sterling traded sideways last week and was stuck in an inside range. More information is needed.

Strong support is still seen at 0.6950. A break below 0.6910 would signal an aggressive downmove to 0.6867. Below 0.6810, distant support comes at 0.6775.

Initial resistance is at 0.6985. This is followed by 0.7008. Above the strong pivot at 0.7028, resistance is still seen at 0.7075. If the cross manages to close above this level, then expect a test of the distant resistance at 0.7118.

NEAR-TERM: Mixed
MEDIUM-TERM: Mixed
LONG-TERM: Bullis