The dollar has strengthened across the board since early in the European session, especially against the euro, amid new speculation the ECB may not have a clear stance as to what their next move may be concerning rates. Only yesterday, some members of the bank said that there is further room for cuts in the next meeting; however Mr. Trichet doesn€™t want to cut heavily just yet, something which became clear in the last monetary meeting. The trouble is the bank has promoted price stability all along, but at the moment their inability to give the markets a clear path is making investors wary as to what the future of Euro zone will be. The euro is feeling it this week, as in every rally there are willing sellers taking the pair back down towards 1.31.
Today the economic calendar has a few releases, with US unemployment claims traders will monitor closely in order to find out once again how the job sector performs. Last week we had a slightly better number, but still more than 600.000. The forecast today sees another dismal number over 650.000 and that may give more reasons to traders to not be optimistic about the economy just yet. President Obama is doing his best to calm the markets and create some kind of hope about the future; however, yesterday he did warn that the US economy is €œnot out of the woods just yet€.
So far, traders are in a wait and see mode and the coming days will tell us exactly how things may progress from here. We have more earning reports coming out of banks and corporations and also important economic data which may give the dollar more to go about. Although we saw dollar weakness in the last few days, due to mainly a swift in the current sentiment, with stocks gaining and traders not feeling the need to buy the dollar as safe haven currency, however back in traders€™ minds there is always the risk of more bad news and therefore risk aversion kicking in once again.
The EUR/USD is trading within tight ranges of 1.31-1.33 and only a clear break of the latter level will give us the next move. The failure of the pair to break on the upside in the last trading session, together with euro weakness due to the unclearness of ECB€™s next monetary decision may give the pair the green light to break below 1.3130, and if that happens, the next level to watch will be 1.3080 ahead of 1.3030.For now however, 1.3130 is a good support level and we need to see it giving way before we can talk about further downside.
Let€™s see how New York opens and if the recent euphoria towards stocks and equities continue in the coming days, as another positive weekly close may give investors more confidence to continue buying.