The dollar began last week on the downside, as Forex traders were continuing to act on the disappointing Non Farm Payrolls figures of the previous week. It managed to stage several intraday rallies during times of equity and commodity selloffs, but overall it appears that Forex traders were searching for higher yielding alternatives. As a result, commodity currencies and equities gained on the week, as traders rotated out of the dollar. Also hurting the dollar was worse than expected Retail Sales numbers, which proved that earlier expectations for a glowing holiday sales season were overly optimistic.

Looking ahead, Forex traders remain fixed on the outlook for when the FED will raise rates, and specifically whether they will begin that process before the Bank of England and ECB. Also, focus is expected to shift from economic data to corporate profits, as the quarterly earnings season has begun. If earnings are weak, this could prompt selling in equities, which could lead to safe haven buying of the dollar.



The euro continues to be weakened by overall negative sentiment towards the Eurozone following debt downgrades at Greece and Spain. Unlike the rest of the market which has traded higher against the dollar, the EURUSD has been unable to gain continued momentum and its rallies have fizzled quickly. Case in point was Friday, when rumors of German Chancellor Angela Merkel's resignation led to a sharp selloff in the euro. Also, last week, was the ECB's monthly rate announcement. During ECB President Trichet's remarks, he voiced support for a strong dollar policy, and mentioned that Greece and other troubled Eurozone countries are not in danger of being kicked out of the Eurozone, but they must continue to implement fiscal responsible policies. Going forward, as long as uncertainty continues in the Eurozone, at Go Forex we believe the euro will underperform most of the major currencies.



The pound was thebig winner of the week, as it rallied on a combination of increased risk appetite in the markets, along with rhetoric from BoE members that the BoE is surveying the UK's economic stability for a possible halt of quantitative easing. During the week, the EURGBP broke below key support of 0.8830, which it had bounced off of several times over the past two months. The move relates that Forex traders are becoming more comfortable with the UK's outlook versus the Eurozone's, and rotating funds accordingly. Looking ahead, CPI, Retail Sales and MPC Minutes are due out this week. The CPI has been a wild card of late for the pound. The BoE has a long term goal of 2% inflation; therefore, if CPI is weaker than expected, it could prompt the BoE to use further monetary policy to achieve its goals. Also, Forex traders will be reading closely the wording form the MPC Minutes to ascertain if BoE Members are really serious about their rumblings of halting quantitative easing.



The yen strengthened against the dollar last week, on the combination of a cloudy employment outlook in the US and a huge import growth number from China. Along with the yen, the aussie, and kiwi also rallied on the China news, as rising Chinese imports, will cause the entire Asia Pacific rim to see benefit, as their export demand will increase. The yen's strength also caused Japanese exporters, which had been on the sidelines, to reenter the Forex market and sell the USDJPY. Exporters suffer when the yen strengthens, as they get paid in a foreign currency and need to exchange those funds into yen. Therefore, before the USDJPY falls further, exporters were locking in prices of their dollars that they plan to switch to yen. Looking ahead, this will be a light economic news week in Japan; therefore Forex traders will continue to listen to news from exporters, to gather if export demand growth is real.