The EUR USD weakened again on Wednesday as central banks continue to stock up on Dollars. The market could have been hit hard again today had it not been for the number of traders on the sidelines. Many traders were going to wait out the Congressional vote on the banking rescue legislation before resuming normal activity. Many traders also took the session off out of observance of the Jewish holiday.

Foreign banks are reportedly paying high premiums to borrow Dollars in the swaps markets even after the Fed doubled the amounts of funds available. Central banks are hoarding Dollars because of the growing global credit crunch. Even as the accumulation of Dollars continues, banks are refusing to extend any credit. This trend is expected to continue until the credit markets loosen up. Look for the EUR USD to challenge the low for the year at 1.3879. There may be a technical bounce on the first test of this level, but expectations are for this low to fail.

The GBP USD was once again pressured on Tuesday on concerns that more U.K. financial institutions will fail without help from the government. The credit crunch is also affecting the U.K. economy as banks have been unwilling to lend to each other and consumers. The economy is expected to continue to weaken - especially in the real estate sector and in the mortgage market. Continue to look for more weakness in the British Pound as more banking related issues are expected to be uncovered. Look for a possible test of the low for the year today at 1.7442.

The USD CHF and USD JPY traded mixed as the U.S. stock market could not hold on to late afternoon gains. Traders lacked the confidence and conviction to hold on to equities ahead of the Senate vote on the U.S. banking rescue plan. Traders fearful that the Senate will reject the plan like the House on Monday were afraid to take a side ahead of the tonight’s vote. The direction of these two pairs will be dictated by the direction of the U.S. equity markets. A favorable vote is likely to be bullish for stocks which should trigger more upside in the USD CHF and USD JPY. A negative vote should tank the stock market as traders would then begin to conclude that the House will once again vote "no" tomorrow. A big selloff in stocks will be bearish for the Dollar against the Swiss and Yen.

The USD CAD posted a small loss in thin directionless trading. Traders sold the USD CAD into the close after several days of spectacular gains. Most of the weakness was attributed to position evening ahead of tonight’s Senate vote regarding the U.S. banking plan. Passing the bill should bring buyers back in tonight and tomorrow. In addition, weakness in the commodity markets should put pressure on the Canadian Dollar.

The AUD USD and NZD USD traded flat to lower in light trading. The lack of confidence in higher yielding assets ahead of the U.S. Senate’s vote tonight to rescue the U.S. financial system kept many traders on the sidelines. Traders are anticipating banking and credit issues to spread throughout the world, and Australian and New Zealand financial institutions are not immune. Central banks are increasing their demand for Dollars, leading to selling pressure in the AUD USD and NZD USD. A weaker gold market may also trigger more downside pressure in these two pairs.
 
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