The USD is closing the week largely unchanged against most major currencies, but the dollar did manage to sustain the break-out from its downchannel in the US dollar index from last week. That breakout, led by gains in USD/JPY last week, was augmented by EUR/USD dropping out of its primary up-channel dating back to mid-August. Follow-through on the break lower, however, was cut short by exceptionally hawkish rhetoric from ECB Pres. Trichet, who went so far as to indicate that some ECB central council members favored a rate hike at this week's meeting. The biggest loser against the USD was GBP, which plunged on weaker service sector and housing data ahead of the BOE 1/4% rate cut, which was correctly forecast in last week's report. Even the Canadian dollar managed to recover a lot of lost ground following the ostensibly surprising Bank of Canada 1/4% rate cut, which was also correctly suggested in last week's report.  Full text »

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Filed under: Weekly Strategy