The greenback tumbled to fresh multi-month lows against the euro at 1.4443 and the sterling at 1.6934 as traders move to break the major pairs out of recent ranges. With equities extending recent gains and commodities edging higher, the dollar remains under pressure amid a shift toward riskier assets. Optimism over a global economic rebound continues to improve, reinforcing sentiment that the worst of the recession may be over.
The week ahead will provide further insight into state of the US economy, providing fodder for equity market bulls and ultimately sending the dollar to fresh lows. The July manufacturing ISM report surged to its highest level since August 2008 at 48.9 versus 44.8 from June. The employment index rose sharply to 45.6 compared with 40.7 in the previous month.
The key highlights for foreign exchange traders this week will be a barrage of US economic reports, including personal consumption, personal income, pending home sales, durable goods orders and Friday's key July labor report. The July unemployment rate is expected to climb higher to 9.7% from 9.5% in June. The non-farm payrolls report is seen improving sharply to post a loss of 340k jobs versus 467k jobs shed in June.
Also to be closely focused on will be the monetary policy decisions from the ECB and BoE. Although both central banks are expected to maintain interest rates at current levels, traders will closely scrutinize any commentary from Bank officials. The break-out has revealed vulnerability to the dollar's downside and will likely set the tone for this week with momentum building against the greenback. The key level for the euro is 1.4338 with sustained gains likely to pave the way for a move toward the 1.4720-level - the spike high from December 18th, 2008.
EURUSD trades above the 1.44-level with resistance eyed at 1.4430, followed by 1.4470 and 1.45. Subsequent ceilings are eyed at 1.4540, backed by 1.4560 and 1.46. On the downside, support starts at 1.4370, followed by 1.4340 and 1.43. Additional floors will emerge at 1.4260, followed by 1.4230 and 1.42.