The dollar has started the week strong once again, against all major currencies and especially the euro and the pound, on back of risk aversion which seems to keep haunting traders across the globe as economic conditions worsen. Stocks were down since market open and continued to do so during European session, as earnings dropped worldwide due to high unemployment and consumer confidence, which printed worse than estimated numbers.

The EUR/USD has found a temporary top at 1.40 and as long as the pair trades below the latter level, there is further risk to the downside towards 1.3860. In the daily chart, the pair is trading within 1.38 and 1.41 and therefore a clear break of these levels will show us the direction for the coming days. If the dollar continues to gain due to safe haven buying and negative sentiment, then the euro may be doomed for another leg down if 1.38 gives way. For now, as it is Monday after a Holiday weekend, traders are not committing either way and reposition themselves for the coming week.

The economic calendar is almost empty today, with only important release being ISM non manufacturing out of US, which is expected to print a better number. The recent better than expected data out of US, made investors being happier about economic outlook, however after the negative employment numbers and high unemployment rate, traders are speculating that the €œgreen shoots€ of the economy were not as €œgreen€ as initially thought and it will take more than Bernanke€™s encouraging words to restore market confidence.

The main event of this week, apart form BOE€™s rate meeting this Thursday, is G8 which will be monitored closely once again from all market participants, in order to see what the world leaders will say about the current state of the economy. The general feel is that the meeting won€™t give us anything new; however it will be interesting to see if there will be any mention of the latest currency debate form China regarding the dollar. The Chinese officials have said over the last few days, that they wont change their currency reserve ,as they have trust in the US economy and its currency and that statement gave dollar bulls some kind of relief for the time being. All eyes and ears will be upon the world officials, regarding any mention of monetary policy or further stimulus to fight current recession.

Let€™s see how New York opens later on and if traders will continue to buy the buck amid uncertainty about the economic future. Things to watch for now are, EUR/USD and if a breakout on the downside towards 1.3860 occurs and GBP/USD and how it will behave towards 1.60 which is a very important level. As long as the pair trades above 1.60 there is hope for another leg up towards 1.65.However, don€™t forget that the BOE meeting could be the catalyst for the pound this week and although rates are expected to be unchanged, nevertheless any mention of deteriorating conditions in UK economy may disappoint traders and make pound weaker once again€¦