For years now we have been witnessing, and even participating in, an unprecedented weakness of American Dollar. Since 2001 EUR went from about 0.8200 to 1.5900 last week against USD. That is, Euro almost doubled its value, or Dollar lost about half. This is truly a stunning development, since we are talking about world's two largest currencies. This is not something that happens all the time.

Euro is not the only beneficiary, of course. Not that long ago CAD made a very decisive all time high, as did the other "commodities currencies", NZD and AUD. Japanese Yen has just made 20 year high. The most telling, perhaps is the level to which Swiss Franc has risen. For the first time ever CHF is at parity with USD, bringing Dollar to as low as 0.9630 few days ago.

Over last few weeks there has been an acceleration in USD sell off. Mainstream press has attributed it to countless factors. Some name credit crunch, stock market plunge, housing market crises, recession, war, federal deficit.... On and on it goes. Most recently there were renewed calls for even farther dollar plunge, based on FED facilitating Bear Stern's bailout, and cutting rates by another 0.75%. Seems like everybody is ready to dump USD by the truckload.

Is there any good news? Well, seemingly not. However, the luck of good news might be encouraging in itself. Extreme price highs/lows are established well BEFORE there is any change in market sentiment. This is true for any market. In our example, one should expect to see Dollar low before there is any wide spread optimism. Just like right now, as of this writing on 03.21.2008.

Here are few reasons for a possible USD bottom against EUR and CHF. On monthly and weekly charts, for both pairs, most recent price moves have met or exceeded prior swings Fibonacci extension target. For EUR-USD a 100% extension level has been passed, while for USD-CHF same level has been almost reached. This in itself is very rare and is indicative of a possible trend reversal.

Last Sunday, 03.16.2008, FED announced Bear Stearns bail out. Forex markets responded forcefully. USD lost about 300 pips against both EUR and CHF. That happened in a few short hours, before major market centers, like Europe and USD where even opened for business. The strongest move in years, Then, just as swiftly, moves reversed. We witnessed a POSSIBLE blowout/exhaustion moves for the pairs we are discussing.

Another clue came on Tuesday, 03.18.2008. FED cut interest rates once again, this time by 0.75%. Large, large cut. Lately, rates cuts were met with dollar sell offs. Not this time. USD not only has not lost ground, but strengthened considerably. This continued for the rest of the week.

Catching precise tops and bottoms is a tricky business, but the sooner one recognizes major trend change, the more profitable one becomes. We don't know if the multi year trends are coming to an end here or not. Rather, large corrections are probable here. Just how large? Well, chances are we will see EUR-USD at 1.3500 within a year and USD-CHF at 1.2000 during the same time span. In other terms, US Dollar is more likely to GAIN about 2000 pips than to slide that much against both EUR and CHF over next 12-15 months.

Mike Kulej is a Chief Forex Strategist for Spectrum Forex LLC. He specializes in mechanical trading systems as explained on www.spectrumforex.com . Spectrum Forex LLC offers numerous services to individual traders. With questions and comments e-mail him at kulej@spectrumforex.com.