Weekly Predictions - Forex Events this Week - Volatility Ahead?

After depreciating consistently over the past month, the USD is now traded just under 1.39 against the EUR, and over 1.64 against the GBP. This week on Wednesday, the Federal Reserve is expected to deliver an Interest Rate statement that is widely expected to leave it near 0%. But any change that might take place is prone to sow disorder in the market, and forex traders should be ready for it.

The encouraging homes sales and manufacturing figures from the U.S. last Thursday helped boost confidence in the USD against the EUR. However, the bearish equity markets drove the USD lower last Friday. Additionally, the EUR/USDpair was trading as high as 1.4000 on Friday, but now trades at the 1.3860 level.

As the U.S. economy leads the world in rising out of recession, the Euro-Zone isn’t so far behind. Nevertheless, they have a banking system in need of radical U.S-style reforms which has been one of the main reasons for the unstable EUR in last week’s trading. This came about in response to the European Central Bank’s (ECB) warning that banks in the Euro-Zone may face up to $300 billion of losses by the end of 2010.

When looking ahead to this week, we can say that there is plenty of economic data that will affect the major pairs. This includes US housing data, the Federal Open Market Committee’s rate statement alongside the Federal Funds Rate decision, the German Ifo Business Climate report and a variety of manufacturing data from the Euro-Zone’s primary economies. Additionally, the world’s leading reserve currency, the USD, may go bullish if the equity market continues to fall rapidly, due to traders possibly flocking to the USD as a safe-haven.

Also in the market this week is a slew of data from Japan which may push the JPY into an intense volatile trading session in the days ahead. As Japan’s economy is expected to rise out of the recession faster than many analysts anticipated, we have seen some renewed strength in the JPY, especially versus the USD. The USD/JPY rate was as high as 97.76 at the end of last week, and is currently trading slightly lower at 96.00.

Japan and China’s recent economic improvement may also be one reason why top U.S. banks, such as Goldman Sachs, have upgraded their forecasts for future Crude Oil prices. They are now beginning to anticipate the price of black gold hitting $85 a barrel by year’s end. For this week, this may mean that prices will stabilize as the primary currency pairs, and Crude Oil, find their true price range. But stability is easily shaken in the forex market and we may be in for a bumpy ride while we await further market confidence.