Analysis

	Currency Market Summary for the week December 10th – 14th, 2007.

The stock markets reacted to a drop in quotations, almost collapsed. A further weakening of the monetary policy is expected. The dollar began its strengthening, but then the major players, seeing that the market aims at selling the European currencies, started aggressive buying, causing massive stops. The pound in less than an hour rose by 210 points to 2.0580 and from there large volume sales began in the "thin" market. By Friday the pound fell to 2.0150, and the Euro dropped from 1.4750 to 1.4420.
The dollar paired with the Swiss franc also strengthened, and, as mentioned in the latest summary, broke through the upper limit of the range and was traded above 1.15.

The Japanese yen was under the sellers’ pressure, which resulted in the rate of over 113 yen per dollar.
Thus, it may be noted that the forecast for the development was correct, although our forecast for the rates was more cautious. There were reasons for that, for just two days later the information on inflation showed its sharp increase. With these figures the further rate decrease will result in inflation, which has been significant for a long time.

The market again experienced liquidity problems. In the middle of the week the Central Banks issued a joint statement on the additional injection in the interbank system of a portion of free money assets. That means that the crisis still exists and is taking over. In such circumstances the strengthening of the dollar may continue due to the fact that it will be bought on Forex and not received in the form of credits on the Interbank market. This scenario is not inconsistent with the technical picture - a steady sign of the European currencies decline was formed in November and now we see that it is coming to fruition.

After a small correction, the present trend will continue. The Euro has the mid-term objective of 1.42, the pound - 1.9950, 1.18 franc, the yen - 116. But there are obstacles to achieving all these levels next week. Some of them are likely to be achieved later, closer to the Catholic Christmas when the major players will go for a break, and the thin market will make it easy to manipulate the rates.
Increased volatility and false breakthroughs of the critical levels are expected.