This Week Will Either Make Or Break Euros Recent Rally!

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

Another week ended with the dollar again on the defensive even after much better non farm payroll data. Let�s see what happened on Friday, with the payroll data being the main economic indicator out of the US. All eyes were on the number which printed 110.000 new jobs for the month. What was really not expected though was the revision of the previous disappointing -4000 to +89000 which took the market by surprise and therefore caused dollar bids all across the board just after the announcement. However the happy smiles of all those who bought the dollar didn�t last long, as the euro bulls took advantage of the 1.4030 lows and started buying euro like there was no tomorrow. We saw the pair moving up towards 1.4150 in no time.

What happened though to cause the dollar sell off on Friday? Well, as we mentioned last week, the trend of the EUR/USD is still up. So therefore, when traders see good levels like 1.4030 what can they do? They cannot help but buy the pair and move the euro towards 1.42. The specific move happened from big Asian and Mid East names that were looking to buy euros at good levels and therefore took all dollar bulls by surprise, when not only they reversed the move but printed new dollar lows! That can tell us many things� That can say that the sentiment is still anti-dollar even after positive data for the American economy. Traders are not convinced totally that the dollar is out of the gloom and they use every chance to sell it.

However, even the bigger dollar bears will have to agree that the recent payroll data gave markets more faith that the economy is not heading for recession just yet, but with better than expected data in the coming days we might start to see dollar gaining against its other currencies and especially the euro.

This week is quite important as tomorrow we have the FOMC minutes which all traders will be monitoring closely for more clues as to what the next move will be. Many analysts start to believe that maybe the Fed will leave its rates unchanged for the coming meeting, especially if the data helps from now on. After the recent cut, many started to make estimates for further rate reduction, in some cases as much as 50 points. However, as the days passed, and with much better payroll data, they have lowered their estimates and the general feeling is that Bernanke and his pals will think twice before cutting again soon.

Apart from the minutes, we have the trade balance which is forecasted to come much lower what with the recent dollar weakness helping no end. In addition, we have PPI data, again very important for the rate decision and last but not least our favorite retail sales, which is expected to print a better number than the disappointing one last time. It is important to see how the consumer behaved last month with the recent credit crisis still in people�s minds.

Let�s see if this weeks data is good enough for the dollar to continue its correction, which started last week and still is trying so hard to complete. EUR/USD still looks good under 1.42 and if it continues like that throughout the week we might see 1.4030 again. The later level is very important support and it will be difficult to be taken out, however if that happens then it opens a clear way for 1.40 and maybe under. Beware of comments form ECB and other European officials regarding the euro levels and as we are coming closer to the G7 that will happen soon in Washington, we might hear some complaining about the euro strength which can eventually may make �euro lovers� rethink their buying positions…