NEWS / Foreign Exchange

Will This Week Help Dollar Recover?

Anotherweek has ended where we saw a complete dollar sell off all across the board,especially against the Euro.  Tradersseemed to loose their faith in the US currency as they quickly putaside better than expected inflation data. Since the start of this week there has been a bearish dollar sentimentwhich seems to getting stronger by the day.

Last week sawworse than expected retail sales figures coming out for the month of February,which was welcomed by the dollar, leading to further selling all across theboard. With EUR/USD trading above 1.32 there was scope for more dollar losses,but data coming out later on in the week didn??™t affect the greenbacksperformance.

Furthermore,we had the PPI out slightly better than expected, however the market didn??™tseem to care and kept selling the dollar anyway. The same thing happened withTICS data which was better than expected and since the last months figure wasvery poor, the dollar related pairs got a bit of boost.

Nevertheless,traders still were not convinced of any progress in the economy and were notprepared to buy the dollar.  Manyspeculate that due to slowing of the economy, the Fed will be ready to actaccordingly and maybe even think of easing the rates sooner rather than later,as most economic fundamentals out of US are disappointing.

Last weekwe saw the Euro breaking important psychological levels, with EUR/USD reachingnew year highs at 1.3345.  As we finishedthe week with the CPI data, the numbers were really mixed as although there wasa slight increase in the headline number, the core figure was neutral.  This didn??™t give too much breathing space forthe dollar, which gained about 30 pips but stayed above 1.33 and closed for theweek at 1.3315.

Another thingthat weighs on the dollar is the problems in the sub-prime mortgage marketafter news of the New Century company being in trouble and ready for bankruptcy.  After the news hit the wires that the lenderswere struggling to meet bankers??™ demands and the company was suspended fromtrading at the NYSE, we saw a dramatic sell off in the Stocks as investor??™sworries for the slowing of the economy worsened. That alone gave more excusesfor traders to sell the dollar as speculations about a bleak future in theeconomy started to occur.

What willbe the future of the dollar this week?  Witha not so busy economic calendar this week we have a few important things towatch, with Housing data being the main star of the week.  As there is so much uncertainty andnervousness regarding the future of the Housing Market, investors will bewatching closely and analyzing every single piece of news coming out.

Firstly wehave the NAHB Housing Market Index following by Housing Starts and Buliding Permits,plus the Existing Home Sales.  Also wehave the FOMC meeting this week with the Feds rate decision fully expected tobe left unchanged.  Although the marketdoesn??™t expect any surprises from the Fed, all analysts will be looking for anyhints of easing their monetary policy in the near future.  That will certainly influence the recent fallof the dollar, with EUR/USD maybe breaking the important level of1.34.

However anysurprises on the upside for any news this week might give the dollar a boostand put euro strength on hold for now.  Webelieve that traders will try their best to push the EUR/USD pair towards newhighs if the sentiment remains dollar negative this week.

So, getready for some serious trading action as we head towards the first set ofimportant news and let??™s hope that this choppy action in the capital marketswill calm down this week with Stocks starting to correct.