This forex trading week has been sharp and abrupt, with gains made one day fully retraced the next. On the other hand, data release has been quiet, with a major United States holiday and the build-up to the Australian national elections superseding the usual announcements. Risk aversion and many currencies are at record highs, and the forex trading market seemed to be holding its breath, waiting for the other shoe to drop.

The chance of independent rate hikes by Australian banks, as signaled by the CEO of the NAB and as mentioned here last week, seems not to have affected the Australian consumer and indications of a booming economy continue. Currently the market has overreacted and priced AUD/USD below where it should be (discussion next paragraph), and this could correct in the coming weeks. The trend is unclear although on Wednesday 21 November the pair entered a range, best seen on hourly chart, between 0.8665 and 0.8766, a key resistance level that earlier this month served as a support.

The U.S. dollar continues to soften as the forex trading market priced in further interest rate cuts of greater than 100bp, which is quite overdone. The true chances of another rate change in December should be judged by the seven FOMC officials scheduled to speak this coming week rather than the USD hitting new historic lows against the Euro and Swiss franc. On the other hand, no bottom has yet been found in the housing correction, with capital shortages in the government-sponsored mortgage entity Freddie Mac increasing the rush into Treasury paper from riskier investments. Retail sales this holiday season are very important to the ongoing health of the USD but there are indications of consumer weariness.

The Eurozone remains stable although the peak of the economic cycle is clearly past. Inflation is expected to nudge higher from increased oil and food prices; business confidence indicators could lower. The chance of an interest rate cut in 2008 must be considered. EUR/USD continues to trend upward and 1.50 seems much more likely after this past week’s 1.4967. The ongoing strategy remains to buy on the dips. First support is at 1.4757 followed by 1.4679; resistance is 1.4940 followed by 1.5045.

The Canadian dollar continued its two-week, 10% decline against USD but with crude oil again hitting record highs this may not be sustainable. The trend since 8 November has been upward although this has become more gradual and momentum has dropped. First support is at 0.9827 followed by 0.9763; resistance is at 0.9926 followed by 0.9961.

The pound sterling was again hit hard against all major trading currencies as the forex market priced in a BoE interest rate cut in December and possible cooling of the U.K. housing market. GBP/USD on Friday closed only ten pips higher than it opened, a clear indication of market sentiment for both currencies, and the possible Fibonacci extension evaporated. First support is 2.0496 followed by 2.0383; resistance is 2.0742 followed by 2.0875.

The CHF and Japanese yen as safe harbors did well against 14 and 16 of the major currencies, respectively. This should continue as long as risk aversion runs rampant, which currently means the foreseeable future.