The Underlying Fundamentals
The environment of global growth has been changing quite a bit in recent weeks and this has been readily apparent in the major currencies. In particular, the British Pound strengthened quite a bit after the unexpected rate hike by the Bank of England, and the lack of a rate increase by the ECB. U.S economic growth appears to be stabilizing as the slowdown in housing is moderating, and energy prices continue to come down. The Fed Funds Futures are still pricing in a rate cut towards the end of 2007, though it remains to be seen whether or not that will actually occur. Economic Data is likely to play a major role for the currency market in the next few months, but remember that the underlying trend is more important than once piece of data.

The cable continues to strengthen against the dollar and is approaching the upper end of its recent range near 1.9790. If this pair can push to new highs it would signal a resumption of the underlying uptrend. A sustained move above 1.9830 would present a good opportunity to go long with limited risk.

EUR/USD
The Euro has been consolidating after the recent pullback and is sitting on support near 1.29. The market appears to be digesting the recent developments and without the fundamental support of increasing interest rates, the long term outlook for this pair has become more neutral. The 1.2750- 1.2850 congestion zone is a critical support level, and it would be quite bearish if this pair cannot hold that level.

USD/JPY
This pair has been on a steady climb after breaking through the 119 resistance level. The unexpected resilience of the U.S. economy has definitely created some fundamental support for this pair. The upcoming rate decisions from the Bank of Japan are likely to impact this market and if interest rates in Japan do rise expect that to dampen the recent strength a bit.

USD/CHF
For the past few weeks this pair has been consolidating just below resistance near 1.25. Last week the intraday trade was quite volatile with 100pip+ ranges without any real movement in either direction. The energy that is building up in this pair is likely to cause a quick move when the current range is finally broken, though until that break occurs I would recommend trading smaller positions.

AUD/USD
Two weeks ago the Aussie bounced off of support near .7775 and that move appears to be stalling out below .79 resistance. The recent strength in the commodity market has no doubt added some fundamental support to the recent rally, though in order for the longer term trend to remain strong this pair needs to follow through. Resistance remains near .79-.7950 and support is near .7830

USD/CAD
Two weeks of sideways trade ahs this pair consolidating just below 1.28 resistance. The overall strength of this market has been quite impressive, and if buyers can successfully break through 1.18 it would be a very bullish sign. Until then, expect range bound trade between 1.675 & 1.18 to contain this market.

Derek Frey is Head Trader at Odom & Frey Futures & Options.

Risk Disclaimer 
Past performance is not indicative of future results. Trading futures and options is not suitable for everyone. There is a substantial risk of loss in trading futures and options.