Yesterday, we saw euro weakening during the day, when traders were pairing back their long positions and therefore send the pair below 1.4750. However the move reversed later on, when a flurry of purchasing activity sent the pair towards recent highs at 1.4860...

As data was mixed, what prompted the big move up in the pair were comments by Fed vice president Kohn that further cuts maybe needed in the next meeting. These comments together with Fed Beige book which showed economy slowing , sparked dollar selling interest from big names (the rumour was that certain central banks were the chief suspects behind that move) and the EUR/USD pair moved up within minutes to retest the 1.4870 level, but faded quickly as the pair headed back to 1.48.

Just when we thought it was safe to think that 1.50 was closer than ever, we saw a huge U-turn all across the board with the greenback getting stronger and stronger by the second, eventually completing a 265-point move down, breaking resistances at 1.48 and hitting a new low for the week of 1.4700.

Today we have GDP and New Home Sales out of the US, which will be crucial for more evidence of economic woes in the American economy. The recent data, suggest that we might see a small progress in the GDP number, however with the housing data being the other news of the day and the already negative sentiment regarding the housing sector, it will be interesting to see traders reaction.

The question for us now is will the dollar strength continue next week and will we see the long-awaited correction for the recent weakness? Will we see 1.45 again soon? To allow an educated guess on what the answer to all these questions will be, we need first to see what the economic releases bring us. If we see better news coming from the US then chances are we will see increased dollar biding and maybe even a change in the already negative sentiment. However the market will need to see very good numbers from next weeks non farm payrolls, before making final decisions. Let's not forget that Fed officials themselves hinted that next payroll data will determine the rate outlook and if negative, easing the rates will be inevitable.

Our sentiment is that yes, we could see more dollar strength, especially as euro is getting overbought by the day and negative comments of European officials might further dampen the European currency, and yes, the dollar bulls might try to steal the spotlight once again. However beware of more euro buying towards the dips as there is extreme positioning for those Euro bulls, who might try to have another charge towards 1.50.

Only time and data will tell, so keep your eyes and ears open during the coming week, as we might continue to see increased volatility and choppier trading ahead of the Christmas Holidays!