Currencies Consolidate Ahead Of Rate Decisions

[B][U]by Lena Manousaridi[/U][/B]

Tuesday, proved to be the first real correction in all dollar related pairs, with the greenback finally showing some strength with EUR/USD dropping from 1.4285 down to 1.4135. The move started in European session, amid comments from ECB officials regarding worries of strong euro and also bad Euro zone data coming out during the day. The move proved to be short lived though as more negative US data hit the wires, with pending home sales dropping again for another month. That gave traders new appetite for dollar selling, driving the pair back to 1.4180.

Today is a new day though, with the pair still clearly under 1.42 and more hopes for further correction in the pair still in tact. The news for today are the ADP report which will give us some idea about what the Non Farm Payroll number will be on Friday. This morning we had various rumors hitting the wires about the number being below expectations but we will have to wait and see. In the past few months, this report was not very accurate as many of its estimates were the exact opposite. However, at the time of the release it seems to give some volatility until traders forget the number and concentrate on the real thing later this week. A very negative number might put the dollar back on the defensive as any bad sentiment might renew short term dollar selling. Furthermore, we have the ISM Non Manufacturing, which once again is forecasted lower than previous and might again give some action after the release.

However, with tomorrow�s rate decisions being the event of the week, we might see choppy trading today with currencies not having clear direction wither way. Traders wont risk taking positions ahead of Trichet’s speech and with speculations that BOE might start easing rates sooner rather than later, it will be interesting to see what the Bank of England will comment after the decision.

As long as the EUR/USD holds under 1.4210,the dollar looks good for further gains and if the data later help we might see the pair trying 1.4135 once again with 1.41 an immediate target. Anything above 1.4210 renews fears of higher lifetime highs�