Overall dollar sentiment will remain weaker in the short term and institutional players will continue to look for opportunities to push the US currency to 2009 lows. There are still important Euro-zone vulnerabilities which will make it difficult for the Euro to secure strong support and international risk appetite is liable to deteriorate. Despite further initial attempts to push the dollar weaker, the Euro is likely to hit further substantial selling pressure close to the 1.43 area.
The Euro maintained a firm tone in Asian trading on Monday and continued to challenge resistance levels during Europe. The Euro pushed to a 7-week high against the dollar.
The US new home sales was stronger than expected with an increase in annualised sales to 384,000 for June from a revised 346,000 the previous month. There was also a significant decline in inventories over the month which pushed the number of unsold homes down to the lowest level for over 10 years. The sharp decline in inventories will boost optimism that construction will recover over the next few months.
The US currency's resilience in the face of negative sentiment, increased speculative selling and improved risk appetite suggests it may be difficult to push the currency sharply weaker even with sentiment generally weak
Markets will continue to monitor official comments on the dollar closely this week with US Treasury Secretary Geithner due to hold further meetings with Chinese officials while there will be a series of press conferences on Tuesday which could trigger additional market volatility.