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The U.S. dollar went down to the new record low levels against the European and Japanese currencies today during the Asian trading session on Forex as the Federal Reserve cut the discount interest rate in emergency.

The global financial crisis continued to press on the dollar even on weekend, when the destiny of the Bear Stearns was decided and the Federal Reserve cut the interbank discount interest rate from 3% to 2% to help the banking institutions to overcome the ongoing financial troubles.

Those factors added even more confidence to the investors, who expect the major interest rate cut on March 18 that it won’t be less than 75 basis points this time. If the interest rate will be changed from 3.00% to 2.25% it will gradually shift the currency’s position on the global Forex market.

During the Asian session the USD/JPY rate touched a more than a decade old level at 95.77, which wasn’t seen since August 1995. It corrected rapidly from that level and was trading at 96.43 as of 11:09 GMT.

EUR/USD set a new absolute high record at 1.5902 and also corrected fast from that important level. It was trading at 1.5775 as of 11:09 GMT.

The dollar is still trading near its record low value against the euro today, but it has managed to recover somewhat from the yesterday’s fall after the oil prices corrected on the increased oil inventories in U.S.

Fed chairman Ben Bernanke’s testimony to the U.S. congress showed that there are possibilities for the housing and employment markets to weaken even further and that the risks for the financial markets and banking sector still remain high.

This testimony added more confidence to the investors that the interest rates in U.S. will be lowered again in March and most probably by 50 basis points.

ING Financial Markets is forecasting a rate cut by 50 basis points during the next FOMC meeting on March 18. This rate cut will continue to pressure on the U.S. currency, depreciating it against currencies with the higher benchmark rates.

Today EUR/USD slid down from 1.5119 to 1.5092 after the yesterday’s massive gain of more than 136 pips on this currency pair.

The U.S. dollar fell below its absolute record low level against the European currency today. If the day closes above $1.5 per euro, it will be a signal for a definite return of dollar to its bearish trend of the 2007.

EUR/USD broke through the major 1.5000 resistance at the beginning of the Asian trading session today, but then the currency pair retraced back below the 1.5000 mark and remained below it for several hours. Near the end of the Asian session EUR/USD broke through that resistance again and soared high up to 1.5087 — its new historical record.

Dollar started to lose its positions against euro two weeks ago, when it became clear that the Fed will continue cutting the interest rates to uphold the economic growth in U.S.

Today many analysts already disbelieve in the numerous forecasts that stated that the U.S. dollar will be gaining against the euro in 2008. The more probable outcome is now seen in a new long-term rally for EUR/USD which can lead to a significant (more than 5%) yearly gain for the euro over the dollar in 2008.

As of 9:30 GMT dollar is trading at 1.5047 rate against the euro.

The International Monetary Fund’s report, released this Friday, shows that the specific part of U.S. dollar in world’s foreign currency reserves fell significantly in 2007.

The U.S. dollar is losing its position as the international reserve currency giving it up to euro and Great Britain pound. In 2007 Q3 the dollar’s share in the Forex reserves was at 63.8%, it was 65.0% in the second quarter this year and it was 66.5% in third quarter of 2006. This shows a definite downtrend in the dollar’s share.

The euro’s share went the opposite direction – it was 26.4% in 2007 Q3 – a significant growth compared to both 25.5% in Q2 and 24.4% in 2006 Q3.

Such a pessimistic trend for the U.S. dollar started during 2006 and now continues after the dollar lost 11.8% to euro in 2006 and was losing 11.2% through 2007

China and several other countries (mainly commodity exporting), whose earnings rallied during the last years, expressed their wish for the reserve funds diversification from U.S. dollar, spending more of the reserve money to go for euro and pound, thus contributing their part to the dollar’s fast depreciation.

Although this trend shows a weakness of the dollar, the recent developments and forecasts for the year 2008 show that there might be some reversal in the dollar’s global course with a possible gain it its share in the world’s Forex reserves.

The median U.S. dollar gain versus euro, estimated by the foreign exchange market experts for the next year, is 3.5%. The dollar is believed to gain strength in 2008 after two years of a pretty fast decline and hitting the historical minimums against several major world currencies.

Surveyed by Bloomberg News, 42 currency analysts estimate that record foreign currency inflows into the U.S. economy will help it to recover from financial and housing crises. This would allow a faster pace of improvment for dollar’s stance in the Forex arena, especially against euro, which has been one of the highest earners against U.S. currency.

Net foreign purchases of the U.S. assets started to grow since the subprime lending slump caused many American financial companies to report losses and depreciate on the stock market. International funds decided to buy these “cheap” shares, which will be regaining their value after the financial volatility goes down.

As to the Japanese yen, currency strategists don’t expect a reversal in the current bearish USD/JPY trend. Yen will benefit from the carry trade unwinding and will rise against both U.S. dollar and euro in 2008, analysts believe.

The dollar is currently trading near its lowest levels, but has already started to recover in mid November. If January won’t bring any unpleasant surprises for this currency, it can face a real rematch against euro and (whic is even more probable) pound.

U.S. dollar has already entered the Christmas flat market zone and is trading on the very low volumes. During the Asian session today it managed to lose just 0.1% to Japanese yen as the latter gained from the good news from Merrill Lynch.

Yesterday USD/JPY hit its monthly maximum level at 114.48 – the rate that hasn’t been seen since November 7. Today USD/JPY touched 113.92 and then retreated up slightly- to 114.15 and is trading very slowly now.

The news that Merrill Lynch is going to receive about $6.2 billion funds from two investment groups added a much needed optimism to the U.S. financial sector. In its turn the positive reactions on this news added confidence to the carry traders strengthening yen against major high-yielders.

There is really no much to expect out of the currency rates movement during the holidays period. But it is worth to mention that dollar is ending this year with bullish trend wave and the first half of January 2008 will probably set the mood for the next year’s Forex trading.

U.S. Dollar gained 0.5% against euro today after the Abu Dhabi government bought a $7.5 billion stake from Citigroup Inc. This sum will help Citi to recover from the recent subprime lending write-offs, as this bank announced surprisingly high losses from this kind of lending.

EUR/USD fell below 1.4800 mark after a good fundamental signal which really should have supported dollar, but it also triggered a massive selling on this currency pair. Because many bullish traders put their stop-loss on the psychologically supportive level of 1.4800, breaking below it pressed on EUR/USD even more – at one time it dipped to 1.4711.

Such a fast and volatile movement shouldn’t be considered a beginning of long-term trend. More probably it will jump back tomorrow, but traders should be aware of a possible major downtrend generation at a present EUR/USD peak.

Canadian Prime Minister, Stephen Harper, confirmed yesterday that his vision of latest CAD’s fast and strong appreciation against USD coincides with the opinion stated by Canada’s Financial Minister Jim Flaherty. The surprisingly high strengthening of Canadian currency bears highly speculative nature and is essentially harmful to the Canada’s economy.

Canada already felt the effect of its currency appreciation as the retail sales and factory orders showed a worse than expected growth. Canada’s exporting nature of economy depends on low rated Canadian dollar, while spiking growth of the national currency, which recently hit its historical records against U.S. dollar, brings worries and dangers as the canadian exported goods become less competitive in value.

Interest rates cut could one of the probable consequences of the recent speeches by Canada’s government figures. The rise of the global volatility drives traders from high risk assets to the low risk treasury notes, which in its turn drives the yields of those notes down. Canadian bonds’ yield is now reaching its monthly minimum values below 4.0%. Given an overvalued currency, low bonds’ yield interest and possible economical slowdown, Canadian Central Bank will probably lower the interest rates by 25 basis points during its next meeting on December 4th.