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The Euro remains firm against the Dollar on yesterday's hawkish comments from the ECB regarding interest rates and fresh news that the financial crisis in the U.S. is far from over.

On May 8, the European Central Bank issues its report on interest rates. It is expected to keep rates at 4% and remain hawkish in its commentary. The ECB is expected to continue to maintain its fight to push inflation down to its mandated level of 2%.

Higher energy and food prices are fueling the concerns about inflation rising in the short term. This is causing the ECB to step up its rhetoric that it will do anything including raising rates.

Another sign that the economic problems in the U.S. housing industry are still lingering and could be getting worse was evident on Tuesday when Fannie Mae announced a loss of $2.19 billion. Traders reacted almost immediately with renewed USD selling. Continued weakness in the housing industry may put the Fed back on track to lower interest rates again, which would be bearish for the Dollar.

Stronger oil prices also put pressure on the Dollar as investors shift money to commodities as a hedge. With crude oil topping $122 and no sign of a let-up, expectations are for the Dollar to continue to remain weak over the short term.

Technically speaking the EURUSD has the potential to rally back to 1.5690 before new sellers surface. Currently the technical picture indicates the potential of a major top at 1.6019 following a weekly reversal down two weeks ago. The key to indicating whether the top is valid, would be a failure at 1.5690. Be patient and wait for the retracement before considering the short side. Minor support has been established at 1.5477.

Higher Commodity Prices Push USDCAD Lower

A report citing better than expected spending by business and government helped drive the U.S. Dollar lower against the Canadian. This news coupled with oil cracking $122 per barrel helped bury the USDCAD to nearly three-week lows.

The main support is not expected to hold at 1.00, as the selling pressure appears too great after being bottled up for several weeks. A trade through .9987 turns the main trend downs and signals a further break to .9946. Look for sellers to come in on a retracement to 1.014.

Besides the crude oil market, firmer commodities across the board including wheat, gold, and copper could also provide support in the Canadian Dollar.

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