The EUR USD made several attempts to rally during the New York session but could not overcome the overnight selling pressure which controlled the market throughout the day.  Despite news of another U.S. bank failure and indications that the Korean Bank/Lehman Brothers deal was not going to happen, the Dollar remained firm.  Early in the morning, the Dollar gained some strength as the U.S. Existing Home Sales report showed an increase of 3.1 percent in July.  Traders are beginning to think the housing market may be bottoming, although many concede much of the increase was due to foreclosure sales.

With the market seemingly accepting the U.S. credit problems, the focus this week may be on economic data.  On Tuesday, August Consumer Confidence and July New Home Sales will be released at the same time.  Depending on when the report was taken, Consumer Confidence may show a slight increase. Lower gasoline prices since July 15 may have helped boost the confidence of consumers. With the inventory of unsold properties rising last month the New Home Sales may come in unchanged to lower. The FOMC Minutes from the August 5 meeting will also be released.  Traders will be looking for insight as to when the next rate hike will take place.  In the absence of any surprises, look for the Dollar to remain firm after the release of these reports.
 
The USD JPY declined on Monday as aggressive traders who bought last week sought the safety of the Yen.  During times of economic upheaval and financial market instability, traders often curtail their appetite for risk.  In this case, investors decided to pay back borrowed Yen by selling Dollars rather than take the heat of a down stock market while trying to catch a higher yield.   
 
The GBP USD fell to a new low for the year, but rallied slightly due to short-covering before the close.  Some traders believe that a strong short-covering rally is overdue because of extremely oversold conditions.  Fundamentally, the Pound is weak as the U.K. economy hovers on the brink of a recession.  With the majority of Bank of England members still deciding to leave rates unchanged at the August 5 meeting, continue to look for the Pound to decline until the BOE is forced to take action to stimulate the economy.
 
The USD CHF sold off after an overnight attempt to go after last week’s high.  A weaker stock market from the opening brought in heavy selling pressure as traders reduced long positions initiated to seek higher yielding U.S. assets.  Traders will be focused on the U.S. economic reports on Tuesday.  Any perceived weakness in the U.S. economy may send the stock market lower which would encourage more selling in the USD CHF.
 
The USD CAD rallied as gold and crude oil sold off.  These two commodities are key to the Canadian economy so a resumption of the down trend in gold and crude could lead to future weakness in the economy.  The USD CAD may be in a position to resume the uptrend which started at .9973 and stalled at 1.0728.  The first objective of this short-term rally is 1.0574.
 
The AUD USD continued lower as resumption in the down trend in commodity prices is leading traders to believe the Reserve Bank of Australia will have to cut interest rates before the end of the year.  With key sectors of the Australian economy already slowing, lower commodity prices such as gold and wheat will add to the erosion of support for the Aussie. Only higher gold or crude will save this market from making a new low for the year.
 
The NZD USD remained under pressure on Monday as traders pressed this pair back toward the low of the year at .6823.  Despite the seven day rally, the trend remains down.  The action today indicates that the short-term rally was likely short-covering.  The economy is still weak and lower commodity prices should continue to erode support.  Unless there is sudden news which puts pressure on the U.S. economy, such as credit crisis problems or sharply higher crude oil, look for a test of .6823 over the short-term.
 
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