Of special note in this week’s trading is the dramatic climb of the Australian dollar against the U.S. dollar, with a 350-pip surge this week due to speculations on a possible RBA rate hike in November and still rising gold and copper prices. This is the strongest position for the AUD in 23 years, as it also climbed sharply against other currencies, including the Euro, yen, and Canadian dollar.

The AUD/USD closed trading Friday at 0.9127. The divergent interest rates should continue to drive this pair higher, with 0.9600 possible on rising momentum and initial resistance around 0.9200. Initial support is at 0.9010.

The U.S. dollar continues to slide against most major currencies. The economic indicators are mixed, with large financial institutions such as Merrill Lynch and Bank of America reporting massive write-downs and employment lay-offs. The U.S. housing market data can only be described as bleak. However, exports rose significantly, consumer spending remains strong, and first-time unemployment is not as bad as feared.

The overall consensus for the predicted Halloween Federal interest rate cut is 25bp, but some estimates are as high as 50bp, and the possibility exists of a second rate cut in December and even additional ones in early 2008. Lower interest rates will of course strengthen the U.S. economy against possible recession although it will continue to soften the dollar on forex markets.

The Eurozone economy shows a slight slowing and no action from the ECB is expected despite the currently elevated inflation levels. There is also no indication of EMU resistance to a strong euro.

The EUR/USD just keeps trending up in a price channel and momentum remains bullish. Friday 26 October it broke through resistance at 1.4350, set on Monday 22 October and affirmed on Thursday 25 October, and closed at a new historic record of 1.4390. The resistance level of 1.4350 has become the new initial support; look for a new initial resistance below 1.4400 although 1.4500 remains possible.

The U.K. also recorded a drop in the housing sector although nowhere nearly as savage as that in the U.S., but GDP and retail sales figures have been solid.

The EUR/GBP daily chart broke above resistance at 0.6867 in mid-September, and has range-traded in a 140-pip price channel since that date, with support at 0.6887 and resistance at 0.7007, set on 12 October, and 0.7026, set on 21 September and affirmed on 26 September. This seems a consolidation pattern without a clear trend.

The pattern shown by the GBP/USD is similar but with a long-term upward trend since April 2006 (clearest on monthly and weekly charts). On the H4 chart, the support is 2.0304 and the resistance is 2.0450. Momentum for this pair is not strong.

The Canadian dollar continues strengthening and is at its highest level since 1974, the best performer among the major currencies. With oil, one of Canada’s major exports, at $92/barrel, and the BoC expected to maintain interest rates steady against the U.S., their major trading partner, this trend can be expected to continue despite such dramatic exhibitions as Monday 22 October, when the USD/CAD climbed from 0.9667 to 0.9822, approximately 150 pips, in seven hours. Indicators remain strongly bearish and momentum is high.