The first full working week of the New Year has started, with the euro weak all across the board and especially against the dollar! The move came early this morning following comments by ECB members that the bank is ready to fight inflation and won’t let it stay above 2% for a long period of time. These comments were taken in their stride by traders who now are pricing in further cuts for the next meeting.

EUR/USD is trading heavily since the European opening and looks poised for further losses as long as 1.3850 holds. The failure of the pair to break on the upside in the recent days indicates that traders may have 1.35 as target for now until Friday. The next level to watch is 1.3620 ahead of 1.3580.

The economic calendar this week looks very interesting and market participants are waiting to see the data out of the US with ISM Manufacturing, jobless claims and the mother of all data, the non-farm payrolls on Friday. The fact that last month we had a terrible number of -533.000 makes one wonder how much worse this month could be! The negative economic conditions in the US together with the ever growing jobless claims indicate that non-farm payrolls will continue to be negative for months to come. Also this week traders are waiting the BOE rate decision and forecasts want the bank to cut by further 50 bps. Many analysts predict that King and co might be tempted to lower the rates down to zero following Bernanke’s strategy. One thing is for sure, the pound is suffering no end from the recent deteriorating conditions and it looks like this may continue in the New Year.

Let’s not forget the FOMC minutes coming out on Tuesday, where we all should be aware of the language used in the Feds latest statement. The FED's latest move to cut rates down to 0, left traders wondering if deflation will be the next big thing in the US and Bernanke have to justify his action in front of Congress in the coming weeks - which won’t be an easy task!

Today we don’t have many important economic events and traders who are back from their holidays and are ready for a volatile week. With 2008 safely behind us everyone is wondering how the markets will play in the New Year and if the recent crisis deepens. So far we see the dollar strengthening across the board and the New Year to start with dollar strength. If we look back at recent years we can see that usually the dollar is stronger in January as traders reposition themselves after year end.

Furthermore, it seems the market is looking for another excuse to buy or sell the dollar and so far the news and monetary decisions haven’t quite managed to provide one. It will be interesting to watch the oil prices again as they rise towards 50, and any geopolitical events that might unfold and affect the currencies.

So, as you can see there are enough events to keep us interested for the week and many opportunities for trading action in most currency pairs. The main things to watch for are the EUR/USD approaching psychological level of 1.35, GBP/USD trying to have another go towards 1.40. These pairs could eventually find buyers at important levels as traders may want to take advantage of buying in dips.

So, stay tuned as there are a lot of goodies this week and you never know, we may finally get to see some breakouts in some of the USD related pairs.