Currency Overview: The story during the N.Y. session continued to be the dollar's connection to oil prices (as well as other commodities). A nearly 2% decline in oil's price was sparked after fears that Tropical Storm Edouard could threaten oil installations in the Gulf of Mexico completely abated. Weaker economic reports out of the Euro zone and U.K also supported the "demand destruction" theory, as traders speculated that sharply decelerating global growth will curtail the relentless appreciation of commodities that's occurred over the last several years.

The euro declined as oil moved sharply lower in overnight trading. The euro zone's services sector contracted further in July, hitting a five year low as prices remained a near-record levels. The RBS/Markit Euro zone Purchasing Managers Index for services companies fell to 48.3. Readings below 50 indicate contraction in the sector. Falls in both the manufacturing and services PMIs took the composite index to a near seven-year low of 47.8. The France services PMI plummeted to 47.5, its lowest since the survey began in 1998, while Italy slipped into further contraction to a survey low of 45.6. Spain had a small rebound to 37.1. Germany, Europe's largest economy, expanded to 53.1 from June's 52.1.

The pound continued its decline from the break of channel support on July 29. News today from the U.K. indicated the economy is heading for a recession, as the manufacturing and service sectors continued to contract because of weakening domestic and export demand along with much tighter credit conditions. The Office for National Statistics [ONS] on Tuesday said manufacturing output fell by 0.5% in June, well below the consensus forecast of a 0.2% increase. The ONS said the larger-than expected fall means it will have to shave 0.06% off its estimate of Q2 GDP growth rate. The service sector PMI rose from the seven-year low of 47.1 hit in June to 47.4 in July, however, the sector looks to be further threatened because the incoming news business index fell to 44.7, the lowest level recorded since the series began in 1996. Traders will be looking for a break of trend line support on 1.9472 to open the way toward further declines.

The aussie resumed its decline after RBA Governor Glenn Stevens signaled the bank will be making its first rate cut in seven years by saying "with demand slowing, the board's view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing." Since the central bank's previous meeting on July 1, reports have shown consumer confidence slumped in July to the lowest level in 16 years, retail sales fell 1% in June, and lending to consumers and businesses rose at the slowest annual pace since 2002. House prices fell in the second quarter for the first time in almost three years. AUD/USD seems destined to test support at the March 20 low on .8952, and a close below there points the way towards the January 22 low (yearly low) on .8511.

The cad continued to rise Tuesday after last Thursday's GDP report showed that Canada's economy contracted for the third month in four in May. USD/CAD closed above the highs of April 1 and June 10 on Monday, and it looks as if the pair will close above the high on January 22 as oil continues to fall and traders continue to price in a rate cut from the bank of Canada. The Bank cut its 2008 growth forecast on July 15 to 1% from 1.4%. The new objective could be the upper 1.0500's, the highs seen last September 6, 7 and 10.

The swissy rose with the equity markets, hitting its highest price since May 16. Valuations on the pair are really driven by the S&P, which found resistance on July 23 at the .382 fib extension of the May to July market sell-off. Since that level lies at 1294, which also coincides with trend line resistance, a break of that level on the S&P is probably your best guide.

The yen traded higher in the overnight session even as S&P futures and European markets appreciated. As with the swissy, we would prefer to see the important resistance level at 1294 break and hold on the daily S&P chart. 108.50 still remains a significant resistance level on USD/JPY.

Dollar Index: The important thing to take from the FOMC statement is that policymakers continue to voice concerns regarding growth and inflation metrics, as Chairman Bernanke did during his recent congressional testimony. By noting that "the inflation outlook remains highly uncertain" Bernanke was apparently able to appease the inflation hawks, as Richard Fisher remained the lone dissenter. The bottom line is the economy is either in, or is very close to being in a recession and the chances of the Fed raising interest while the situation exists are probably very small. The statement and vote likely do not offer a sufficient vigilance on inflation in order to give true support the dollar, in that there is a lack of any signal regarding a rate increase. Look for the Fed to be on hold through the rest of 2008. On the day, the index rose to 73.921 after gaining 0.459 (0.62%).

DXY has formed a triple top that is back to be tested at the 74.00 area, the question now is - can it hold? The USD is on over 90% of all currency tickets, it makes up the value of all synthetic cross pairs, so knowing where the USD is trading, and what is driving it, is key to sustained success in reading and really understanding the nuances of Forex charts.

Overall: Traders decreased bets for a rate increase at the October meeting after the FOMC statement was released.

XLF Introduction: It will be the XLF, the exchange traded fund for the Financial sector, that signals when the equity markets are really making moves that are likely to hold - if the market is buying or selling the XLF they are signaling that they are prepared to be buying or selling risk. Look for a day where over the average 130 million shares are traded on above average price action (+/- 1%). Previous yearly support was at 24.00 and then 22.00, both of which collapsed in the recent decimation of the equity markets as they pushed to new yearly lows. They will now become upside resistance as we see this sector turning itself around. The current support area is 18.00, breaking either way, on big volume, is key to whether the moves can hold, and whether the equity markets will follow. If you are of the mind (as we are) that financial shares are leading the market it will be very useful to watch how this trades. Average daily trading volume has been increasing steadily and is presently just under 170M.

The Financial Sector: The sector did very well as Citigroup (C) and Bank of America (BAC) led financial shares to their best gain in a week. Financial shares rallied 4.3% as traders increased bets that the central bank will hold borrowing costs at 2.0% through the rest of the year after the FOMC statement was released. AIG (AIG), the world's largest insurer, rallied 10% to $29.33 for the biggest gain in the Dow average. Citigroup gained 5.6% and Bank of America rose 3.6%. Of immediate concern to the sector as well as the overall market is the direction of oil prices. The market will be supported if oil falls to a level that will not ignite inflation, slow global growth further, or force central banks to raise interest rates. On the day, the XLF gained 1.09 (5.08%) to close on 22.54 good volume of 180,565,922 about 10.5 million above the daily average.

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