What a morning today, with the start of the European session being very eventful to say the least. With Monday being a relatively quiet day, dollar continued its decline against the euro and the pair was trading above 1.42 for most of the day.
However, come Tuesday and we saw the biggest move we have seen for a while in almost all the currencies with the carry trades leading the way, and the yen related pairs being sold off all across the board. What caused this move though? Well, there were comments from Japanese officials overnight regarding concerns over the yen weakness and euro strength. Also, Bernanke in his speech said that FED is still poised to fight inflation which is like saying that they wont cut rates any time soon.
Also, the fact that we are getting closer to Friday, the start of the G7 meeting, makes investors nervous and especially the curry traders, who want to close risky positions ahead of the weekend, just in case. We believe that during the week there will be choppy trading and big short term moves which will provide a lot of volatility.
Today, we have the TICS data later on, which will show the foreign appetite of US$ investments and the number is forecasted to come out better than last month which was really low at only 19.2B. Lets not forget that the recent trade balance printed 57.6, so any number over 60 would be good for the dollar as it will cover the trade deficit. Also, we have the industrial production data which again will be watched closely by market participants for any signs of slowing in that sector.
The main event though might end up being the NAHB housing index which will be out much later, and which is going to show how bad things are in the housing sector after the credit crunch. The fact that this number is coming lower every month definitely doesn�t do favors for the dollar and it will be interesting to see how the market reacts at the news.
Lets see what the day brings and watch out for the dollar which started to strengthen against the euro and if the very important level of 1.4150 breaks for good then we might see further drop in the pair at 1.41 or bit below that. Again though, as the trend is still up, we might see buying at any levels below 1.41 with the scope of pushing the pair in another upwards move�