Crisis around Pakistan and weak housing data drive USD down by year end 

The dollar fell against the euro and posted the biggest weekly decline versus the currency since April 2006 after a Commerce Department report showed sales of new homes fell to a 12-year low last month. U.S. housing data shows no signs of any bottom in sight. The U.S. currency decreased for a sixth day, the longest decline since October, on bets a slowing economy will encourage the Federal Reserve to cut borrowing costs next month.

The dollar also weakened as riots erupted in Pakistan, considered an ally in the U.S. war on terrorism, a day after the slaying of former Prime Minister Benazir Bhutto.

Fed Rate Outlook

Interest-rate futures on the Chicago Board of Trade indicate 90 percent odds that the Fed will reduce its benchmark interest rate a quarter-percentage point at its Jan. 30 meeting, compared with a 76 percent chance yesterday.

The dollar's share of global foreign-exchange reserves fell to the lowest level since records began in 1999, as international demand for U.S. assets slumped after the subprime- mortgage market collapsed.

Well, 2007 has certainly proved that the USD's dominance, which has been eroding for a few years, has reached a new low. 

International investors have reduced their holdings of U.S. stocks and bonds since the August credit collapse hammered the values of corporate bonds and securities tied to subprime mortgages. The losses spurred by rising U.S. mortgage defaults caused banks and securities firms worldwide to write off more than $80 billion.

Foreigners were net sellers of long-term U.S. financial assets in the third quarter, U.S. Treasury figures show. Monthly sales averaged $11.8 billion in the period, compared with average net purchases of $64 billion in the previous five years.

In August, when the credit rout sparked concern that banks would curtail lending, leading to a slump in spending that would send the U.S. into recession, foreigners sold a net $40.7 billion of American stocks.

The dollar diversification story is likely to stay alive through the course of 2008. It's not something that's going to happen overnight. It's a long-term negative for the dollar.

For traders, although it may sound strange, it does not really matter which way the greenback tends to go next year as long as it moves, we are in business. So keep trading in perspective, always.

Have a wonderful, happy and prosperous new trading year in 2008!

EURUSD

RESISTANCE:1.4910

SUPPORT:1.4550

SENTIMENT: Bullish

RESISTANCE:114.30

SUPPORT:11050

SENTIMENT:mixed to bearish

GBPUSD

RESISTANCE:2.0165

SUPPORT:1.9770

SENTIMENT:mixed to bearish

USDCHF

RESISTANCE:1.1670

SUPPORT:1.1170

SENTIMENT:mixed

USDCAD

RESISTANCE:1.0000

SUPPORT:0.9650

SENTIMENT:mixed

AUDUSD

RESISTANCE:0.8925

SUPPORT:0.8540

SENTIMENT:mixed to bearish

GBPJPY

RESISTANCE:229.10

SUPPORT:221.95

SENTIMENT:mixed

EURJPY

RESISTANCE:167.70

SUPPORT:164.20

SENTIMENT:mixed