Dollar fell to record lows against major currencies on Friday

The Dollar fell to record lows against the Euro and a basket of major currencies on Friday after economic data supported views the Federal Reserve would cut interest rates again to shore up sluggish growth. More monetary easing, on top of a half a percentage point reduction in the federal funds rate two weeks ago to 4.75%, would further erode the appeal of dollar-denominated assets.Forex market sentiment on the Dollar remains very bearish. As long as we keep getting weak US economic data and as the market builds short-Dollar positions ahead of another rate cut by the Fed next month, the EurUsd is bound to test the 1.4500 level.Friday news of a muted rise in a monthly measure of Core Consumer Prices, which excludes volatile food and energy items, lifted the EurUsd to an all-time high of 1.4278. It was last trading 0.82% higher at 1.4273.The mild rise in Consumer Prices may be reassuring to Fed policy-makers, who have been closely monitoring the economy for any indication that inflation pressures might be building. The Euro has gained 4.3% versus Dollar in September and 4.9% during the quarter, the largest increase since the second quarter of 2006.The third quarter has been focus to the Yen, which has benefited as investors unwound risky trades in the wake of a growing liquidity crisis that began in the US sub-prime mortgage market. The Dollar has dropped 6.6% against the Yen in the last three months, the biggest quarterly decline since the fourth quarter of 2004. UsdJpy fell 0.64% to 114.80 on Friday. Against the Swiss franc, the Dollar was also down 0.81% to 1.1633. UsdCad dropped 0.78% to 0.9937, leaving parity further behind.The market was little moved by separate reports showing a modest rise in the pace of business activity in the US Midwest region in August, while Consumer Sentiment was unchanged in late September from August. Forex analysts said market focus has shifted to speeches by various Fed officials for clues on the size of next month's expected interest rate cut.

EurUsd trend remains positive. Market hit all time high 1.4282 this morning, which marks initial resistance before a new extension to 1.4291 and 1.4333 strong resistance. Initial support holds 1.4165 former resistance. Nearby support cuts at 1.3927 where a lower development would threaten the up-trend, but it would need a return below 1.3719 to confirm trend change. GbpUsd recent trend continue to suggest Sterling will remain strong. Last Friday, key resistance 2.3063 has been broke and open the way for further gains toward 2.0660 July high. Former resistance 2.0363 is holding initial support. A return below it would expose further downside. But it would need a return below 2.0000 psychological level and 1.9880 support to confirm trend change. Beyond that point, 1.9821 marks strong support (76.4% retracement of 1.9652 to 2.0366 advance). UsdJpy The downtrend remains intact below 117.13 major resistance. Confirmation over this level is needed to relieve the negative tone and open the way for an extend toward 119.36 (61.8% retracement of 124.15 to 111.60 decline). On the downside, a return below 113.39 (Sept. 11 low) would open the way toward 112.61 and a possible retest of 111.60 (August 17 low). UsdChf remains negative in recent downtrend after having broken 1.1816 former key support and moreover Friday break of 1.1680 support. Further weakness will open the way down to 1.1500 psychological support and possibly 1.1484 (2005 March 14 low). However, on the uptrend, a recovery beyond 1.1923 and 1.1962 is needed to relieve the actual bear threat.

First net decrease in U.S. payrolls pushes Dollar down

News and Events:

The U.S. released surprisingly weak employment numbers for August: Non-farm payrolls fell 4,000 (vs. 110,000 expected), the first decline in four years. Investors have pushed down the U.S. dollar back into it's downtrend; the U.S. Dollar Index, the currency's trade-weighted index against six major currencies, hit a low of 79.83, the lowest value since September 1992. Analysts and investors alike believe that the Federal Reserve Bank will almost definitely cut rates as soon as this month from the current 5.25% to help lift the strain off the credit markets and restore confidence among banks. The U.S. housing problems have had a greater effect on the broader economy than originally thought, which might lead the Fed to an unusually large rate cut, possibly 50 basis points vs. the traditional 25bp increment. The U.S. jobs report also caused Asian equities to drop and triggered investors to sell high-yielding assets, and in turn boosting the Yen. The USDJPY dropped to a low of 112.60 and the GBPJPY to 228.27 in early trading today.

The Risk Today:

EurUsd blasted through the 78.6% retracement level at 1.3735 and settled at 1.3775 last week. Look for a 100% retracement to 1.3842, the all-time high with an eye for the psychological 1.40 handle. On the downside, there are no obstacles back down to 1.3666 and then 1.3608, the former 50% retracement level. GbpUsd holding steady at the 61.8% retracement level of 2.0273. Should it's behavior mimic that of the Euro, we eye a short-term target of 2.0465, a strong resistance. On the downside, 2.0156 holds as the first support with strong support down to the lower trend-line at 2.0070. UsdJpy has clearly eyed it's previous low of 111.58, hitting 112.60 in early trading today. Look either for a bounce back to 114.57 which will open the door back to 115.50, or, a slam down through 111.58, after which 109.00 will be the major target to hit, the May 17th, 2006 low. UsdChf still hovering between upper and lower trend-lines of the triangle, this pair will break out with a vengeance very soon. Look either for a break down through 1.1800 to be short, or 1.2145 to be long.