The past week was rather negative for the US dollar as it was falling against other currencies (with a notable exclusion of the Japanese yen, which dropped for the third straight week against the US currency). What can the coming week bring to the greenback?
The major driver for the dollar recently was the speculations about possible tampering of Federal Reserve quantitative easing. The speech of the next Fed Chairperson confused the Forex market as during one session traders believed that tampering will happen soon, and another they thought that stimulus will be prolonged. The Federal Open Market Committee will release this week minutes of its last monetary policy meeting, helping traders to assess the stance of policy makers regarding the timing of stimulus reduction.
Last weekâs fundamental reports were very disappointing to dollar bulls. This week, the very important report about inflation will be released and it can affect the currency in a significant manner. Retail sales report will be another piece of information to watch.
Outside of the United States, the dollar will likely be affected by something that looks like a currency war among central banks of developed nations. The European Central Bank surprised the market on its last policy meeting, cutting interest rates, and additional monetary easing should not be ruled out. The Bank of Japan maintains extremely accommodative policy in hope to weaken the Japanese currency and to spur economic growth. The Bank of England, on the other hand, is talking about monetary tightening, not easing.
DailyFX is bullish on the dollar in general. Regarding specific currency pairs, Forex Crunch is bearish on EUR/USD and AUD/USD, bullish on GBP/USD and NZD/USD, neutral on USD/CAD. Forecasts of EFX News promise rather poor fundamental data from the USA this week and if it is the case than the dollar will be under pressure. Over longer term, Goldman Sachs believes that the greenback may fall against European currencies, but rise versus the yen and currencies of emerging markets.
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