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FX daily Commentary

Will This Weeks Data Give Dollar Further Strength?

Mon, Aug 25 2008, 12:32 GMT
by Lena Manousarides

FXGreece

So far, this month has been full of action and the market is certainly not in “holiday mode”. The fact the economic data coming out of US and Europe disappoint gives traders a feeling of uncertainty, which is very clear in the choppy trading we have seen these days.

Last week the euro managed to gain against the dollar after it broke 1.48, reaching 1.49 within a few hours. However the move was not strong enough to continue and therefore dollar bulls took control of the situation and the pair lost all its gains on Friday. Bernanke’s speech in Jackson Hall didn’t offer anything new for traders, who already knew the US was suffering with the subprime mortgage and low liquidity. Bernanke said he is unsure of the inflation and he basically gave the idea that the bank could keep interest rates unchanged through 2009. All in all he was dovish for the dollar, however traders decided to ignore him and still bought the greenback all across the board.

This week the economic calendar looks bit more “alive” and there are some important economic releases that traders will monitor closely. Today we have existing home sales which are expected to print better than last month and if the number is good, the dollar may see modest gains. Later on in the week we have durable goods orders and new home sales. On Tuesday we have the FOMC minutes which no doubt will play an important role in the dollar’s direction over the coming days. The fact that traders were optimistic about rate hikes in the future is one of the reasons why the dollar is strong these days and if the outcome of the meeting shows there is no chance of having higher rates for some time, the dollars outlook may not be quite as rosy.

Other important economic events this week are the German IFO which will again cause quite a stir in the markets as every economic release out of Euro zone from now on is affecting the Euros direction no end! The last set of data was very negative and if that continues then the euro may make a bid for 1.40.

The EUR/USD is trading above 1.47 and as long as 1.4630-50 is intact, we might see a further move towards 1.48-1.4850. However if the economic data out of US is better and surprises the markets, we could see the pair breaking 1.4630 and making new lows in the coming days. We believe that 1.4450-1.4550 will be good levels to buy the pair for a deeper correction towards 1.50.

The pound is really weak at the moment and that is to be expected after the GDP last Friday printed a multi-year low number which made analysts think the UK is already in recession. The fact the economic growth is struggling and the unemployment is going up makes the economic future uncertain and therefore the English currency remains very weak.

The GBP/USD finally broke the important 1.85 level and printed a new multi-month low at 1.8430. A clear break of 1.84 brings 1.8320-50 in the picture. From that level however, we may see consolidation for the pair as it is already trading in oversold territory.

Let’s see how the markets will react this week to the fundamentals and if the returning traders will support further dollar strength

Published on  Mon, Aug 25 2008, 12:33 GMT