The dollar index started Monday with a slight uptrend, trading at 79.958 up from 79.830 on Friday. The Dollar was help by renewed concerns over the global recovery. Still, uncertainty regarding market conditions, as well as the direction of the Dollar, is likely to continue dominating this week as well; with the USD trading in a narrow range with its major currency counterparts.
However, high volatility is expected on Wednesday and Thursday as there are several major news releases ahead of the July 4th weekend. Thursday is expected to be particularly interesting with the release of the European Central Bank�s (ECB) policy statement at the same time as the U.S. June payrolls report. The employment data are the most closely watched reports that guide market expectations regarding U.S economic recovery, while diminishing green shoots in the Euro-Zone put great focus on Central Bank policy.
With last week�s mild statement from the FOMC failing to give the market a clear direction, uncertainty is still the driving force in trading. Better than expected economic data from the U.S no longer automatically pushes investors to riskier currencies; therefore, positive economic data from the US might actually be beneficial for the Dollar. It will be important to follow the ECB statement, as any direction the Dollar might take based on the news will be intensified by the statement.
EUR
The European currency has experienced much volatile behavior in the past several trading weeks. This is owed to the EUR�s response to various equity market rallies, and mixed data regarding the economic situation in the Euro-Zone. Recently published data shows a resurrection of consumer confidence in the region, according to the European Commission. Releases such as this indicate that the pessimistic forecasts for the Euro-Zone economy were farfetched, as it seems that the regions economy is fairing better than many anticipated.
Just at this moment, the EUR/USD recorded a 3-week high of 1.4116. This is largely owed to traders ditching the USD due to the U.S. stock market rally. Additionally traders� confidence poured to the EUR, as optimism returns. The GBP/JPY is currently at a 2-week high of 159.35, as demand plummets for safe-haven currencies. The EUR rebound may continue, if the Euro-Zone�s Interest Rates are kept at 1% on Thursday, and if German Chancellor Angela Merkel continues her disciplined handling of Europe�s economic affairs.
GBP
The Pound seems to remain �the wild card� lately, as Britain�s currency always seems to beat market forecasts. Recently, the OECD (Organisation for Economic Cooperation and Development) and British bankers warned of a prolonged economic recession for Britain, as GDP slumped by over 5% in the 1st quarter of 2009. On the other hand, the facts on the ground support that enough data shows an improvement in Britain�s economic fortunes.
The key issue that pessimists eye is Britain�s mounting deficit, which is currently 14% of GDP. This is the highest in the industrialized world. A number of analysts expect this to lead to downward pressure on the GBP in the medium-long term. This argument may have credibility. However, it seems that the GBP may continue rising against the EUR, USD, and JPY as the current trading week continues.
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