The dollar is weakening once again against the euro, as traders are getting ready for the FOMC meeting and Bernanke€™s speech tomorrow about the future of interest rates. Investor€™s expectations for a rate hike are diminishing by the day and this is bad news for the dollar all round. Stocks are trading mixed since early European, and so far DOW JONES is down amid worse than expected earnings and uncertainty about tomorrow€™s meeting.
The EUR/USD is trading heavily and the pair is ready to take out the important 1.4030 at the time of writing. Next level to watch is 1.4070 and only a clear break of the latter level will give euro bulls the upper hand once again. As I mentioned yesterday, the dollar is weakening as we are getting closer to the FOMC meeting and if tomorrow Bernanke indicates further plans to buy government bonds to revive the economy, the dollar may continue to slide. As long as the pair makes a breakout of recent 1.38-1.40 range, we shall see continuation of the move in the coming days.
The economic calendar had a lot of releases out of Europe, with PMI coming out slightly lower than expected but not giving the euro any trouble as yet and also Existing Home Sales out of US coming out worse than expected, making traders wondering where the recovery that everyone is talking about is. The market participants are waiting for the FOMC meeting and traders now start to worry what FED will do about the rates and likely higher inflation and how will this play with the current dollar level.
As we understand in the previous years, the Bush administration was doing everything in its power to undermine the dollar and did not care one way or another about the weakness. The EUR/USD was climbing fast towards 1.60, however as long as it was helping the exports and creating jobs, the previous government did not care that much. However, after the recent economic crisis and the market€™s collapse, the dollar came back in power and the recent strength we witnessed was mostly due to risk aversion and safe haven buying. The truth of the matter is that the dollar€™s direction does not affect the actions of previous or current governments as Obama is trying his hardest to tackle the economic crisis by putting more money into the system and essentially crating the need to print more money. In other words, this could eventually be lethal for the dollar, and it will be interesting how they will cope with a weaker dollar and rising inflation in the coming months.
For now, let€™s see how EUR/USD behaves above 1.40 and if the current rally will create a breakout amid important meeting tomorrow and testimony by Bernanke. Traders are in a wait and see mode and after tomorrows statement we will be hopefully wiser as to the dollar direction and the FED€™s imminent plans€¦