Just a quick note - I will be on vacation for the next two weeks. During this time, I will be updating this blog periodically, but will not be able to do my usual daily and intraday updates. Please stay tuned, and I will be back in two weeks with a lot of great new ideas and updates for this blog. Thanks!

James Chen

(Please click on the accompanying chart to enlarge. Chart is courtesy of FX Solutions.)

As of early Friday morning (10/31/2008) in New York, as shown on the accompanying EUR/USD daily chart, the upside correction on this key pair has been rejected at the key resistance imposed by a major 38.2% Fibonacci retracement level that coincides with strong prior support/resistance around the 1.3250-1.3300 region. After having been rejected at this level, price has fallen back severely once again to target strong support around the two-and-a-half year lows in the pair (1.2330 region), which were just hit earlier in the week. At this juncture, we should potentially be seeing a consolidation between the long-term lows and the aforementioned 38.2% Fibonacci level, possibly with some further near-term downside action within this consolidation.

(Please click on the accompanying chart to enlarge. Chart is courtesy of FX Solutions.)

As shown on the accompanying AUD/JPY daily chart, price has been making a major rebound from the extreme depths of just a few days ago. Right after price reached an historical low of around 55.00, the pair turned on a dime to rise around 1300 pips as of early Thursday morning (10/30/2008) in New York. Could the carry trade finally be on stable ground again? Or will we be seeing even lower lows within the foreseeable future? On any continued upward momentum, price could eventually be targeting the key 72.00 resistance region.

Following is a link to an article I wrote for Forbes.com that came out on Tuesday, 10/28/2008. This is especially relevant now with the impending Japanese yen intervention: http://www.forbes.com/personalfinance/2008/10/28/yen-dollar-forex-pf-forex-in_jc_1028soapbox_inl.html

The FOMC decision was to cut rates by 50 basis point to 1.00%, which was widely expected by market participants and priced in accordingly prior to the announcement. The decision led almost immediately to some bearish price action for both EUR/USD and GBP/USD, and then a rebound and some consolidation. As of about an hour after the announcement, these pairs appear to be holding up, and there seems to have been little substantive effect as of yet on the current corrections taking place.

The GBP/USD has made some major rebounding strides within the last couple of days. This rebound is in anticipation of the FOMC rate decision. Please click here for the technicals on this pair from Wednesday’s Chart of the Day.

With the widely expected U.S. Fed rate decision impending, trader expectations of a rate cut have already led to dollar weakening and euro strengthening. From a technical perspective, the dollar has been well-overbought against all the European currencies, and exhaustion in dollar momentum has been due for some time now. The FOMC rate decision may indeed be the catalyst for finally establishing a firm top in the dollar and a bottom in the EUR/USD. Technical updates to come after the decision.

(Please click on the accompanying chart to enlarge. Chart is courtesy of FX Solutions.)

As of early Tuesday morning (10/28/2008) in New York, USD/JPY (a daily chart of which is shown) rebounded in a major way during Asian trading, purportedly due to reports of potential yen intervention and a rebound in the Nikkei Index. From a technical perspective, price has just turned up from oversold, hinting at a possible change in directional momentum. This week should tell if this turn becomes a true bottom reversal or is just another correction in the overall downtrend. Major support to the downside remains in the key 90.90 region, which is the recent historical low. Any continued upward momentum on this correction should target initial resistance around the 98.50 region, a previous support level.

UPDATE: As of Tuesday afternoon in New York, bullish rebound action on this pair has not abated. Price has blown well past the 95.75 barrier, potentially on its way up to the 98.50 support/resistance level as mentioned above.

UPDATE 2: As of late Tuesday afternoon in New York, price has indeed come only 10 pips shy of reaching the resistance target of 98.50, as noted above, before retreating.

Update 3: As of early Wednesday morning in New York, price has surpassed and then retreated substantially from the 98.50 resistance in late trading on Tuesday.

(Please click on the accompanying chart to enlarge. Chart is courtesy of FX Solutions.)

EUR/USD has continued to drop as of early Monday morning, New York session. As shown on the accompanying daily chart, price is currently stalled around the key 1.2450 support/resistance region that was noted on this blog last week. And the low that was reached this morning was another key support/resistance area around 1.2330. If there is a strong subsequent break below this level, price could ultimately target 1.1800, yet another key level. However, before that level could potentially be reached, minor correction(s) and/or consolidation(s) should be in order. Further updates to come as price action develops.

UPDATE: As of Monday afternoon in New York, price has rebounded significantly to the upside. Support to the downside remains at 1.2330, while any continuation of an upside correction should target strong resistance to the upside around the 1.2860 region.

UPDATE 2: As of Monday evening in New York, price has finally reached the 1.2330 level once again, as noted in the original blog post above. Watch for any strong potential breaks below this key support/resistance level.

UPDATE 3: As of early Tuesday (10/28/2008) morning in New York, price has respected the 1.2330 level and bounced up off of it in overnight trading. This support level will continue to be watched for any possible breakdowns, and resistance as noted above remains in the 1.2860 region.

Across the board as of Friday morning, key currency pairs have dropped massively and mercilessly. This includes EUR/USD, GBP/USD, AUD/USD, USD/JPY, GBP/JPY, and EUR/JPY, among others. Huge movements occurred in the direction of JPY and USD strengthening before prices finally exhausted themselves for the time being and retreated from their extremes. In the process, numerous support levels were summarily tossed aside. While the extreme bearish price action that has occurred in these pairs is most likely done for the week, the big question is whether downward momentum will continue next week or if the bears have finally exhausted themselves. More price action updates to come as the markets digest the carnage that has occurred.