The euro enjoyed a strong rally this past week, but was this a sign of optimism in European growth and interest rates or a mere retracement borne from the need to quickly diversify away from the US dollar?

Risk aversion is the key to the Japanese yen’s path over the next few weeks and into the beginning of 2009.  However, the ebb and flow in market sentiment will be far from straightforward.  Heading into the end of the year, liquidity will put an unusual spin on volatility and the demand for a safe haven currency.

The British Pound tumbled against all major currencies, as a steady wave of dismal economic data doomed the Sterling to further losses.  Deterioration in Bank of England interest rate outlook and a larger-than-expected British unemployment rate gain further cast further gloom on fundamental sentiment.

Switzerland’s economic calendar is empty next week, leaving the franc in search of other catalysts to guide directional momentum. On balance, the medium-term outlook favors Swiss franc weakness.

The feds want to give people money.  They’ve already cut interest rates to zero – as a practical matter, they can’t go lower.

With major holidays looming on December 25 and January 1, leaving many of the world’s financial markets closed, trading volumes will fall dramatically.  Thin markets have a tendency to result in either very choppy or very quiet price action.

Professional system trader Art Collins shares his daily biases in the index, bonds and currency futures markets for December 19.

The US dollar rebounded on Thursday, and there were hints of lingering risk aversion behind the move.

The EUR/USD reversed violently after hitting a high of 1.4719 today. Kathy Lien doesn't think that it is a coincidence

Professional system trader Art Collins shares his daily biases in the index, bonds and currency futures markets for December 18.