Analysis

	Currency Market for the week of October 22nd- 26th, 2007.

New historic highs for the Euro are overcome in one-two days. Following a sharp decrease at the beginning of the previous week (we predicted such situation, see the summary from October 21st) from 1.43 to 1.4130, the Euro grew to 1.4440, which tells us to expect a breakthrough of the 1.45 level in the mid-term perspective.
Early last week the pound dropped by 300 points - from 2.0562 to 2.0263 and it grew after that almost without any corrections. The immediate goal is 2.0650, whether it will be passed is still a question, since the graph clearly shows the double peak. So far divergence in a number of oscillators confirms this scenario. The US FRB meeting is coming and the main question,  the answer to which we will get on Wednesday, October 31st, is whether the dollar fall will be so rapid or it is going to slow down.  In the case of such aggressive rates reduction, i.e. to 0.5%, the dollar will not stay long on the current bottom and will drop to a new one. In case the rates are reduced moderately by 0.25%, then small corrections are possible and the American currency weakening will be more steady. The least probable scenario is that the unchanged rates will result in strong correction to 1.40 for the Euro and 2.0240 for the pound. The scenario with an increase of the rates is not worth considering. However, extremely high, at first glance, gold and crude oil prices can let the FRB leaders make some tough statements, though such “verbal interventions” are not likely to influence the market for a long time. It should be noted that such statements would be timely as gold has closely approached 800 dollars per ounce, crude oil to 100 dollars per barrel, the situation with the Euro and pound has been described earlier. This is a very convenient moment for profit taking and correction.
The rate dollar-yen is being steadily traded within the range of 113.60 – 115.35 with a possible raise to the upper range early next week. There have appeared signals for a possible short-term price growth to 115.50-115.80.
Following high crude oil prices, the Canadian dollar will grow too. As stated in the previous summary, the trend is developing towards 0.95 figure and the level of 0.9580 has already been tested. Correlation with the crude oil prices remains so high that for this currency pair the analysis if of the Brent and Light Sw. is more reasonable than consideration of the technical indicators of USDCAD, which have been in the red for a long time.
For a majority of instruments the dollar is close to the critical levels, thus to expect the continuation of this trend until the RFS resolution would have been too simple. By Friday the trading is going to be in the narrow range with false breakthrough in both directions.