I'm especially interested in the yen-quoted crosses right now because global stock markets are at a precarious point. Another leg lower in stocks could send the yen a lot higher, meaning cross rates like the GBP/JPY could continue lower.

The catalyst -- and key -- is for stocks to sell-off. This will really make the yen strengthen and get the yen-quote crosses moving lower.

One strategy to consider when the dollar is extended is to focus on the cross rates. There are many good set-ups unfolding in some of the cross rates, most of which haven't seen the big trends associated with dollar-related pairs.

One cross rate to watch is the GBP/JPY. It recently rolled over from a long-term descending resistance level, but has firm horiztonal support below at 209.00.

The reaction by the forex market was to sell the euro. But the euro was already down quite a bit in the last few weeks going into this morning's ECB meeting, which is why we didn't see a bigger reaction to the shift in language.

Looking at the EUR/USD, it's now back down to relative lows within its multi-month trading range. A breakdown is likely, as measured by a drop to 1.5200. But the risks of a bounce are growing by the day. That's why I'm not shorting the EUR/USD at this point and, instead, waiting for a better entry point from a risk management perspective.

The AUD/USD has been in free fall for the last six trading days. It's gone from 0.9800 to near 0.9100. On the point and figure chart, the AUD/USD has formed a bullish signal reversed -- one of the strongest bearish signals in the point and figure universe.

You can read the statement from the RBA by following the link below:

Statement by RBA

Clearly the Aussie is under pressure, along with most other foreign currencies, against the greenback. The sentiment in the forex is shifting to favor the dollar as traders realize that other central banks need to start cutting rates and catching up with the Federal Reserve. We're going to be hearing many more statements like the RBA's that point to lower rates across the globe. But be careful in jumping in bullish dollar positions. Wait for good, low-risk entry points. There will be plenty in the months ahead.

The FOMC is expected to do nothing. Growth in the U.S. economy is next to nothing, but inflation is running high. That's a recipe for doing nothing with short-term rates. So, the emphasis will be placed on what the Fed says tomorrow. My hunch is that they won't offer anything new.

I think it's important to point out that the greenback has had a good run going into tomorrow's meeting. It might be due for some profit taking and a pullback. But I'm still looking to buy the U.S. dollar on dips. This strategy is working extremely well. Just take a look at how the USD/CAD long trade has worked out.

http://www.fxpnf.com/fxpnf-blog/crude-drop-puts-cad-at-risk.html

The USD/CAD was trading near parity (1.0000) at the time of the set-up. It's now trading around 1.0360.

So, I'm not going into tomorrow's FOMC meeting with any expectations. Ideally, I'd like to see the dollar pullback and base at a higher low before its next run higher. At the same time, I'm going to avoid chasing momentum and buying into strength, even if it does breakout.

You can see what I mean on the chart of the U.S. Dollar Index at 74.

There's generally a lot of insider trading that goes on in the forex market. Economic data are leaked all of the time. That's why I view this morning's action in the EUR/USD as very interesting. My hunch is that tomorrow's non-farm payrolls number is going to be better than expected. That's why the EUR/USD slammed back down to near its recent lows after this morning's early pop.

I'm not placing any bets ahead of the report. Instead, I'm sticking by my discipline and following the plan I outlined in yesterday's post, looking for low risk entries near the Fibonacci retracement level at 1.5700. I missed this morning's move up to that level, but will look for a repeat tomorrow if my hunch is wrong.

EUR/USD 1 Hour (H1) Chart and Point and Figure Chart

It's highly likely that the EUR/USD will continue down to near 1.5400. Whether or not it attracts buyers at this level again remains to be seen. But I'm not entering new short positions on this outlook. I'm going to wait for a better entry point, one with lower risk.

I've been using a Fibonacci retracement bracket anchored at the high and low of the range to trade the EUR/USD. The retracement bracket helps to identify levels in between the bigger, more meaningful support and resistance levels on the point and figure charts.

For example, I'm watching the 50% retracement level near 1.5700 as a potential resistance level and, consequently, low risk entry point for new short positions. I'll short the EUR/USD at this level on any forthcoming rally that stalls.

The six day rally has taken the USD/CAD up to near ten month highs. The horizontal resistance level that I'm focusing on is roughly 1.0300 to 1.0350. I expect the USD/CAD to pause near this resistance zone in the next few days.

The pair could eventually breakout, however, if oil prices continue lower. But for the moment, I'm looking to protect some great gains that have accrued over the last six days.

There's a lot of housing-related data due out in the U.S. over the next couple of days. The data are likely to be a big mover because of the significance of the U.S. housing market. It is, after all, the source of the global credit crunch.

Later this week we'll get the July labor report in the U.S. This number could be a big market mover, but look for positioning to start 24 hours ahead of the actual release.

Aside from the USD/CAD, which continues to work in my favor, I'm watching the EUR/USD. That's because the pair is trading near the mid-point of its fourth month range. A breakdown below the mid-point -- reinforced by the 50% Fibonacci retracement level -- at 1.5600 might set the stage for further weakness in the EUR/USD, possibly down to the trading range lows near 1.5400. Alternatively, a rebound back above 1.5800 might set-up a return to 1.6000.

Yes, these are relatively small moves, but we're likely to see one or the other this week depending on the outcome of the economic data.

I didn't make a bet that the CAD would weaken until a few weeks ago, when crude oil cracked in a big way. Canada is a huge exporter of energy such as crude oil and natural gas. The CAD tends to ebb and flow with the prices of these resources.

You can read more about crude oil and the CAD by clicking here.

The continued drop in energy prices has led to a good profit in my USD/CAD long position. If you're following along, you might be up anywhere between 100 to 170 pips. That's not a bad move for four days.

Right now, it's a matter of timeframe when deciding to take a profit or not. In the short-term, the USD/CAD could pullback yet again within its channel.

Of course a breakout from this channel would complete a bull flag, which could lead to a much bigger rally over the next couple of months. This is an increasingly likely outcome if oil continues lower.

The USD/CAD has been unable to break above 1.0300 all year. It's been a staunch horizontal resistance level. Should the USD/CAD break its short-term bull flag, it could have a shot at clearing horizontal resistance at 1.0300.

For my part, I'm taking half of my long position off the table and booking partial profits; I'm letting the other half run in an attempt to catch a breakout above 1.0300.