Carry trades again declined in favour this week as geopolitical turmoil in Pakistan urged investors out of the riskier areas of the financial marketplace despite robust trading in global stock markets.

The Australian dollar strengthened against its U.S. counterpart on slightly stronger gold prices. The AUD/USD currency pair on Wednesday entered a trading range between 0.8786 and 0.8721 and remained there the remainder of the week in overall low liquidity. Weekly pivot point is 0.8738; initial resistance outside the range limit is 0.8805 followed by 0.8858; initial support outside the range limit is 0.8685 followed by 0.8618.

USD dropped against 15 out of 16 of the most actively traded world currencies, mainly on extreme holiday illiquidity but also on a report stating new home sales fell to the lowest level since 1995, although similar declines in the inventory of all homes for sale suggested the U.S. housing market may bottom out during the second half of 2008. FOMC cut interest rates three times in 2007 and odds remain high for additional cuts next year, although the chances of the U.S. economy actually going into recession are weak at best as consumer confidence and spending continue steady.

The Euro gained more from USD softness than from Eurozone strength, with early German inflation numbers coming in above 3% and a sharp drop in retail sales. 1.4750 remains a strong resistance level since mid-December. EUR/USD weekly pivot point is 1.4603; secondary resistance is 1.4839 followed by 1.4962; initial support is 1.4480 followed by 1.4244.

The pound sterling continued depreciating against most of the “majors” on anticipation of another interest rate cut in January as falling residential and commercial real estate prices and mortgage approvals signalled slower economic growth. GBP has lost 9.4% against EUR in 2007, showing a yearly gain of merely 1.9% against the beleaguered USD. On the daily chart, recent GBP gains appear to be more profit-taking in an illiquid forex trading market than actual strengthening, and the currency pair closed near the psychological 2.00 point. GBP/USD weekly pivot point is 1.9901; initial resistance is 2.0048 followed by 2.0168; initial support is 1.9781 followed by 1.9634

The Canadian dollar again appreciated beyond parity as oil prices surged to $98 per barrel, rising 18.8% versus USD in 2007 and 1% this past week alone with the overall trend remaining down; however, concerns over the economic strength of Canada’s largest trading partner may limit these gains. USD/CAD weekly pivot point is 0.9830; initial resistance is 0.9905 followed by 1.0008; initial support is 0.9727 followed by 0.9652.

The yen strengthened despite mixed Japanese economic data that included a higher-than-expected increase in core consumer prices. USD/JPY weekly pivot point is 113.30; initial resistance is 113.97 followed by 115.33; initial support is 111.94 followed by 111.27.

The Swiss franc appreciated both as a traditional safe-haven and as a funding currency for the carry trade and not on any strength in Swiss economic data, signalling a possible interest rate hike in 2008. USD/CHF weekly pivot point is 1.1369; initial resistance is 1.1478 followed by 1.1688; initial support is 1.1159 followed by 1.1050.