The Dollar traded sharply lower against the Euro as traders expressed their concerns financially about the government’s plan to rescue the U.S. banking industry. Fear is in the market at this time as global traders feel the increase in the U.S. budget deficit from $700 billion to $1 trillion will cripple the U.S. economy.

The trend turned up in the Euro for the first time since late July. Given the number of shorts in the market that still have to cover, this market may continue to surge over the short run. This rally may develop into a long-term trade depending on when the market begins to accept the rescue plan. Based on the long-term chart pattern, look for this rally to continue until at least 1.49.

Shorts continue to cover their positions and new buyers have stepped into the GBP USD. The trend has not turned up yet on the daily chart, but the closing price reversal bottom from two weeks ago is still in tact. The charts indicate much higher markets are expected once the daily trend turns up on a move through 1.8793.

Although the UK banking system is under the same pressure as the U.S. banking system, the amount of the bailout of the system by the U.S. government is making the Dollar weaker at this time. There is rumored to be a record number of shorts in the Pound. If this is true then this market has a lot more short-covering to go before this pair stabilizes.

Both the USD CHF and USD JPY plunged sharply lower on Monday as the global equity markets felt immense downside pressure. Even without short sellers present, traders expressed their displeasure with the equity markets by taking profits from last week’s rally. Tomorrow will be a key day as some stocks have pulled back far enough to be attractive once again. Swiss and Yen traders sought safety today during the equity break. Traders feel that it is too risky at this time to borrow Swiss Francs and Japanese Yen for investment in higher yielding assets. The charts are reaching a point that may trigger an acceleration to the downside. With the trend down in both of these pairs, look for an acceleration down if the USD JPY fails to hold 103.53 and 103.76. In addition, the USD CHF should feel pressure under 1.0842.

Stronger commodity markets - especially crude oil and gold - helped the Canadian Dollar rally against the Dollar. With the stock markets virtually shut down because of the shorting limitations, money is flowing into commodities. As long as this trend continues look for the USD CAD to continue to weaken.

The weaker Dollar and stronger gold markets helped the AUD USD and NZD USD post gains. The technical picture is bullish for the Aussie as the main trend has turned up. The NZD USD has reached a key retracement zone at 68.25 to 69.17. Look for the uncertainty over the U.S. banking rescue plan and the explosive U.S. budget deficit to continue to hurt the Dollar. Traders are attracted to the AUD and NZD for safety and return. Look for the uptrend to continue. 

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