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The Week Ahead EUR/USD Fundamental Outlook at 1500 GMT (EST + 0500) EUR/USD - Euro Dollar, American Session - 29/08/08 More EUR/USD The Week Ahead GBP/USD Fundamental Outlook at 1500 GMT (EST + 0500) GBP/USD - British Pound Dollar, American Session - 29/08/08 More GBP/USD USD/CHF - Dollar Swiss Franc, American Session - 29/08/08 Market Moving News: USD/CHF - Aug 29 USD/CHF - Dollar Swiss Franc, European Session - 29/08/08 More USD/CHF

The U.S. Treasury, the guardian of the U.S. Dollar, finally stepped up to the plate and took a hard swing to counter ECB President Trichet's extremely hawkish comments last week regarding an interest rate hike in July.

Since Trichet's comments were made public, the Dollar has dropped significantly subsequently triggering a massive rally in the crude oil market.

Early last week Fed Chairman Bernanke stated that the Fed is "attentive" to the value of the Dollar and its effect on crude oil prices and inflation. He also stated that he was in close contact with the Treasury Department regarding the matter.

Although at the time, Bernanke's comment helped rally the Dollar and break crude oil, in my opinion, many traders privately thought that he was out of his league commenting on the value of the Dollar since it is the job of the Treasury Department to protect the Dollar.

Now that almost a week has passed since Bernanke's supportive comments, it looks as if traders realized late last week that despite what he said, he really could not do anything about the value of the Dollar short of a surprise rate hike. With the Fed implying since March 18 that it is finished cutting rates, and the market pricing in a Fed rate hike by December, all Bernanke could do was try to talk up the Dollar.

On Monday, however, Treasury Secretary Henry Paulson said in an interview with CNBC that he would "never" rule out currency intervention. This comment packed some punch as the Euro had its largest decline in close to a month. The threat of an intervention put fear in the market, especially since it has been rumored that the Treasury was the muscle behind much of the decline that started in April. All eyes will be focused on the Treasury and on the other members of the G-7 who allegedly backed a stronger Dollar earlier in the spring.

The Dollar received an additional boost from Federal Reserve of New York President Timothy Ginter who stated the central bank is watching the Dollar. So far, the comments from the Fed and the Treasury are acting like a verbal intervention. This strategy has worked for at least one day as the EUR/USD retraced close to half of the rally from late last week.

With the Fed's hands tied regarding interest rates because of a lingering financial crisis in the U.S., last week's poor unemployment picture, and rising inflation, it is going to take strong supportive comments from the Treasury Department to provide the muscle to gain control of the Dollar.

Fundamentally, other supportive factors for the Dollar were the increase in contracts to buy existing homes, and the tightening of the interest rate differential, which makes Dollar denominated assets more attractive to investors.

With both the ECB and the Fed/Treasury firing out hawkish commentary, look for the Euro to trade on both sides of the retracement zone at 1.5700 to 1.5550 until the fundamentals shift in favor of one currency over the other. Traders will soon grow tired of the chatter and develop an appetite for more concrete news. Unless this occurs before the next ECB meeting, the market may trade sideways for a few weeks.

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