What a week this is turning out to be! Just when we started to think that the greenbacks strength had wasted away, we had resurgence these last few days, with EUR/USD trading with a heavy tone and generally finding difficulty to sustain gains over 1.47.

Dollar looks strong today, after economic data revealed high PPI prices and a very good number in retail sales.

EUR/USD is still confined in the 1.4650-1.4750 range at the time of writing, however a clear break of 1.4650 might take the pair down to test important support at 1.4625, which if breaks next level to watch is 1.4590. Dollar bulls are clearly having good time these days, as euro is struggling to maintain gains above 1.47. It would be certainly very interesting to watch tomorrow’s CPI data out of the US, and if we see another load of high inflation numbers, dollar might continue the recent rally.

The move yesterday by ECB and FED, to inject money in the markets, certainly took traders by surprise and as a result carry traders resurfaced and send all yen related pairs up, by more than 500 points! Initially that was bad news for EUR/USD where the pair climbed back up towards 1,4750, but reasons for that had more to do with EUR/JPY rally rather than anything else, so the pair retraced quickly below 1.47.

The question for us now is will the dollar strength continue until the end of the year and will we see the long-awaited correction for the recent weakness? Will we see 1.45 again soon? To allow an educated guess on what the answer to all these questions will be, we need first to see what the economic releases bring us. If we see better news coming from the US then chances are we will see increased dollar biding and maybe even a change in the already negative sentiment. Remember that with most traders’ greatest fear of recession still alive, better economic data might help ease those worries.

Our sentiment is that yes, we could see more dollar strength, especially as euro was getting overbought by the day and negative data out of Europe might further dampen the European currency, and yes, the dollar bulls might try to steal the spotlight once again. However beware of more euro buying towards the dips as there is extreme positioning for those Euro bulls, who might try to have another charge towards 1.48.

Also watch all yen related pairs, as USD/JPY is trying hard to break 112.50 resistances for another go towards 113.25. Also GBP/JPY is trading heavy these days, where in 2 days we have seen the pair gaining 500 points and then loosing it all the next day. Next level to watch is 230.30 which could be tried for quick shorts; however a clear break of that level puts the pair back towards 234.

Only time and data will tell, so keep your eyes and ears open during the coming week, as we might continue to see increased volatility and choppier trading ahead of the Christmas Holidays!