The Dollar is trading stronger against most major currencies. News that the U.S. government may provide stimulus to the economy in the form of tax cuts and spending is leading to speculation that the U.S. economy will be the first to pull out of the recession.

The Euro is trading weaker overnight. Last week’s bearish economic news out of the Euro Zone is reviving talk that the European Central Bank will have to cut interest rates at its first meeting of the year on January 15. The Euro may feel pressure throughout the day based on worsening economic conditions in the Euro Zone. Traders are also beginning to think that the run-up in the Euro during December was a bit overdone and are now poised to push it to more acceptable levels. The charts indicate the first downside target is 1.3634.

Traders are starting to position themselves for a rate cut despite hints by ECB President Trichet that they may consider alternative means to revive the sluggish Euro Zone economy. Early last month the Euro surged when ECB President Trichet hinted at skipping a rate cut at the European Central Bank’s next meeting on January 15. At the time he talked about watching the market and perhaps trying alternative ways to stimulate the Euro Zone economy. A few weeks ago the ECB lowered rates on deposits. This action put in the top and led us to where we are today.

Given the developing weakness in the Euro Zone, it looks as if the ECB has no choice but to lower rates to at least 2.5% in January. Traders are beginning to price in a cut to this level which should lead to more downside pressure in the Euro during the upcoming weeks.