Another week, another new low for the dollar, with EUR/USD well above 1.44 at Monday open. As the pair keeps trading above 1.44, there is a lot of speculation about how high will it reach before some kind of correction occurs�
Last week, although we didn�t have much economic news in the calendar, nevertheless the ones we had were really bad for the greenback, with housing numbers printing yearly lows. Market players did sell the dollar at the news, as the risk of further losses in the American currency after a bad economic indicator is almost non existent!
This week we have plenty of events to keep us occupied, with the FOMC meeting and non farm payrolls being key events for the short term future of the dollar.
On Wednesday, we also have GDP out of the US, and with the risk of this number coming lower than previous the dollar will probably suffer another wave of selling all across the board. Also we have ISM manufacturing and non-manufacturing for an idea of how the business sector is performing and last but not least our all time favorite non farm payrolls on Friday. The previous number did surprise the markets as it was not only better than expected but also revised better than previous negative number. Market did trade the news in dollars favor to start with, however later on the dollar bears gave way to further dollar losses and in the end the good news seemed like a far fetched dream.
We see that market is so negative to any news at the moment that even with good economic numbers from the US, there is still losses in the greenback. The very fact that EUR/USD is trading above 1.43 for a few consecutive days, shows that traders have one thing in mind: 1.45 and maybe above�
The question is what will Bernanke and pals do at the policy meeting? Will they take the �safe� approach and cut rates once again in order to stabilize the housing problems? Or will they leave rates unchanged due to the very low dollar levels and fear of further deterioration in the markets? Their job will be once again very difficult as it seems like whatever they do will have almost the same impact in the markets psychology. If they cut, that might initially be welcomed as relief but later can be interpreted as a panic move from the bank and therefore can be met with a sell off in stocks and equities. If they don�t cut and leave rates unchanged, although initially good for the greenback, global markets will suffer as this move can be interpreted as lack of action by the FED. So, thing to watch is not only what the FED will do, but HOW will the market interpret the action!
Today Monday there is nothing major out data wise, therefore as it is the start of the week, we might see some consolidation for the dollar, as it reached again extreme over bought levels at 1.4435. Next level to watch will be 1.4450 and then 1.4485-1.45(important psychological level for all traders)�