FX WEEKLY REPORT, January 28, 2008

With an emergency 75bp rate cut from the Federal Reserve and Societe Generale losing $7 billion in a trading fraud, volatility has ripped through the financial markets this past week. For those traders who are hoping for the tides to calm in the coming week, they will have to continue hoping because the economic calendar is filled with market moving data. The Federal Reserve has their official monetary policy meeting on Wednesday while non-farm payrolls are due for release on Friday. According to Bloomberg, analysts are calling for only a 25bp rate cut but the futures market is pricing in a greater chance of a 50bp cut. Regardless of who is right, one thing is assured and that is volatility. In addition to the actual rate cut, the Fed’s guidance will also have a meaningful impact on the currency market. An article in today’s Wall Street Journal criticizes Bernanke for being too sensitive to stock market fluctuations. If that is the case, then today’s 171 point slide in the Dow is not going to make him happy. Should equities give back more gains, the Fed may deliver a larger move on the fear that 75bp was not enough. We can’t envision the FOMC statement being hawkish because we expect interest rates to fall to as low as 2.50 percent this year. Friday’s non-farm payrolls report will confirm or deny whether the Federal Reserve has made the right decision. After the weakest rise in job growth since August 2003 analysts expect the labor markets to improve in the month of January. Although it may be difficult to believe that companies are still be hiring in the current market environment, jobless claims suggest that at least they are not firing. In addition to the FOMC and NFP, we are expecting durable goods, personal income, personal spending, Chicago PMI, the University of Michigan Consumer Confidence survey, manufacturing ISM and construction spending. The manufacturing sector is already in a recession and we expect it to remain that way, therefore the PMI and ISM numbers should not be dollar positive. (Dailyfx.com)

TECHNICAL OUTLOOK – DAILY CHARTS

EUR/USD

Resistance: 1.4960

Support: 1.4355

Sentiment: bullish

GBP/USD

Resistance: 2.0100

Support: 1.9500

Sentiment: bullish

AUD/USD

Resistance: 0.9020

Support: 0.8515

Sentiment: bullish

USD/JPY

Resistance: 108.65

Support: 104.70

Sentiment: bearish

USD/CAD

Resistance: 1.0395

Support: 1.0000

Sentiment: mixed

USD/CHF

Resistance: 1.1130

Support: 1.0840

Sentiment: bearish

GPB/JPY

Resistance: 217.65

Support: 203.90

Sentiment: mixed to bearish