Adding to the gloom, major US blue chip companies, Intel and Time Warner both posted earnings that fell below analysts’ estimates. Wal-Mart also surprised by lowering its fourth quarter outlook. Analysts are concerned that if the world’s largest retailer had its figures set too high, then there is the real risk that earnings estimates are still too high across the board, going into earnings season. In short, the fear is that the bad news hasn’t yet been priced in, a scenario which is hardly going to be a positive catalyst for the next few months.

On the currency markets, it was a rare strong week for the pound. Sterling raced further away from parity against the Euro, and is pushing towards the $1.5000 level against the US dollar. Traders repositioned themselves after the bank of England cut by ‘just’ 50 base points, while at the same time speculation grew that the ECB will have to ease their relatively tight monetary policy soon. Traders now doubt that the Euro zone will be as strong as many thought this year. The British and American economies are still on the sick list, but now it is becoming apparent that struggling European nations such as Italy, Spain, Ireland and Greece could force the ECB to cut rates. The coming week is relatively quiet, starting off with Bernanke speaking on Tuesday. US retail sales come on Wednesday, with PPI and unemployment claims to follow on Thursday.

The falls have to be seen against Bernanke’s failure to deliver an emergency interest rate cut and President’s Bush’s announcement of an economic package to stimulate the US economy. Clearly the markets were not impressed.

In the currency market my predication concerning the eur yen was spot on. Having penetrated 154 I believe it is now downhill all the way – the rate at which the yen crosses fall can be quite alarming. There is similar pressure on the canadian yen, although do be aware that we have an interest decision and retail sales from Canada as well as a press conference with the Bank of Japan’s Toshihiko Fukui.

The press conference is held following Japan’s Monetary Policy Committee (MPC) interest rate announcement which is always void of commentary, so traders look to Fukui’s press conference for clues on future monetary action. Sometimes there is heavy market volatility during the press conference as traders attempt to decipher Fukui’s clues.

With regard to the euro it has reacted badly this morning to soft German PPI figures and bears are now eyeing 1.4200 level for evidence of a major turn.

Daily close prices at around 1.46 should be seen as an attempt to build support and therefore buying opportunities.   A good timescale to use when prices are consolidating is the 4 hour period as most of the market noise has been filtered out.

Having squeezed out the risk of inflation last year the BOE now faces the problem of trying to prevent a slowdown, if not recession, in the UK economy. The pound has already fallen almost 6% since the bank cut rates in December and don’t be surprised if the Bank cuts again today in the light of tighter credit conditions, reduced consumer spending and a slowing housing market. If there is no rate cut today then we can be sure there will be one in February.

However, the final indicator which may sway the bank into cutting rates today is the alarming fall in growth from 0.8% to no more than 0.3% in the coming quarters.

From a chart point of view both the weekly and monthly show further downward pressure for the pound against the dollar as well as the Japanese Yen. Indeed the pound yen pair has been tipped by no other than Goldman Sachs as a sure fire sell for 2008. You have been warned!

The Euro is not quite so clear cut as the ECB may continue with their hawkish stance. However, as recession has officially been called in the US by both Merrill Lynch and Goldman Sachs we may even see the Euro strengthen against the dollar, even though it is only a question of time before the ECB too will have to consider cutting rates to in order to stimulate growth. The Euro Dollar chart is poised to go either way and i would not trade this pair until the interest rate statement from Trichet and there is further data on growth from the eurozone.

In the currency markets the story of the dollar continues with major falls against the euro and the yen but it is the yen crosses which are producing some good trading opportunities as all the carry trade pairs continue to reverse sharply as risk aversion returns to the market. As traders it is the ability to “tap into” market cycles of panic and complacency which will always produce the best returns. The good news is that these cycles occur in all time frames, from years, months and weeks to days and hours so if there is one new year’s resolution that every trader and investor should make, it is to make an effort to disengage emotionally from the market and take advantage of what the market is saying, not what he or she would like it to say.