It is very hard to get excited about the US fundamental position and the dollar outlook, especially with the massive US budget deficit. The Euro-zone economy will also remain an important focus in the short term and overall confidence is liable to weaken further, especially with dovish remarks from ECB officials. Euro vulnerability on the crosses will also tend to drag it down against the dollar. The best strategy at this stage looks to be selling Euros on rallies above the 1.3350 level.

After dipping sharply in New York trading on Thursday and remaining weaker on Friday, the Euro staged a powerful recovery on Monday. Trading liquidity was very low for much of the day, especially with European markets still closed for the Easter holidays. From lows near 1.3120, the Euro rallied strongly to a high around 1.3390 in New York. Risk appetite was generally firmer which underpinned the Euro to some extent, although the impact was magnified by the lack of liquidity.

After better than expected results from Goldman Sachs, positive earnings data from the banking sector would help underpin risk appetite and this would tend to undermine the dollar. The impact will be offset by industrial fears with an earnings warning from Boeing and GM bankruptcy speculation.

There will still be an underlying lack of confidence in the Euro-zone economy with default spreads on German debt edging higher. The comments from ECB officials have also continued to suggest that interest rates will be cut again. Euro vulnerability was illustrated by declines against Sterling and the Swiss franc over the past 24 hours.