The US dollar gained somewhat against most major currencies last week as risk aversion returned to the Forex market. What traders can expect from the greenback this week and what the major driving factors for the US currency will be?
The Federal Reserve was responsible for the last week’s rally as its minutes made traders believe that the central bank may remove stimulus early. Fed Chairman Ben Bernanke will start his two-day testimony on Tuesday. Market participants hope that he will give hints about the future policy of the US central banks. Of course, it is not certain that he will do this. But investors have tendency to take into account even tiniest details of speeches (admittedly, sometimes even imagining them), therefore Bernanke’s testimony can strongly affect the Forex market. There is plenty of macroeconomic data from the United States this week, including the fourth quarter GDP figure, consumer sentiment and housing reports. It can prove negative for the US currency in the longer term if these reports turn out to be poor, suggesting that the Fed has no real reason to end accommodative measures. In the short term though negative data may be beneficial for USD, spurring risk aversion. The danger of budget sequestration is also favorable for the currency as a safe haven.
The situation in Europe, particularly economic reports from Germany, will also affect USD (especially EUR/USD currency pair of course). The election in Italy is also an important event. It already sent the euro down as polls showed that the voting may result in a divided parliament.
Elsewhere, economies around the world are struggling, driving investors to safer currencies. Even China, which looked like stabilizing on its path to consistent growth, made an unpleasant surprise today as its manufacturing growth unexpectedly slowed and was dangerously close the level of “no-growth”. Such economic environment is positive for USD.
Analysts are somewhat divided about the potential performance of USD this week, but largely with bullish bias. DailyFX is neutral on the dollar, while Forex Crunch is bullish on the greenback against most currencies.
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