USD

Nothing gets the dollar going like a nice spanking to all 'em EU countries. And that's what happened last week as the dollar zoomed higher on credit downgrades from Standard and Poor's on three of the P.I.G.S. As a result, the dollar hit 10 month highs against the euro, and, on Tuesday, stock and commodity indexes plunged over 2%. The only other beneficiary to the credit woes was Gold, which saw its prices soar above 1170 to a new 2010 high, as traders sought safety in the precious metal.

Also occurring last week was Wednesday's FOMC Meeting. Unsurprisingly, the FED left rates unchanged but did add some optimistic commentary about the US economy. Specifically, they mentioned that the employment and consumer sectors were improving. These statements, although tempered, allowed the dollar to rally against the yen since it now appears that - sooner rather then later - the US will raise its interest rates.

This week, Forex traders will be watching numerous US employment data releases, culminating with Friday's US Non-Farm Payrolls. Currently, traders believe that jobs growth is the key factor that will eventually cause the FED to raise rates. Therefore, if expectations aren't met, it could lead to a long week for the dollar.

EUR

Once again, trading in the Euro was dominated by headlines regarding the P.I.G.S. Last week, Standard and Poor's didn't pull any punches as they downgraded Greece, Portugal and Spain's credit ratings. The biggest move was in the Greek debt, which saw its bonds downgraded to JUNK. This caused yields of Greece's debt to skyrocket, and has made Greece's refinancing of its imminent maturing debt that much more expensive. However, it was the downgrades to Portugal and Spain that really spooked Forex traders, as this led to contagion worries. As a result, the EURUSD traded to 10 month lows of 1.3130.

Looking ahead, the ECB is meeting on Thursday for their monthly interest rate meeting. Forex traders will be watching to see what type of statements ECB President Trichet says regarding Greece, Portugal and Spain. As such, Greek bailout proceedings - and prices of EU bonds - are expected to be the main cause of movement in the Euro.

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GBP

With the UK's Parliamentary elections set for Thursday, Forex traders are ignoring the past and concentrating on the future. The main item Forex participants care about is what type of budget will be passed following the elections. Consensus opinion is that a Conservative majority victory would lead to pound strength. That is because they are expected to pass austerity measures to reduce the UK's deficit. On the other hand, a hung parliament could lead the GBPUSD to new 2010 lows.

However, it may not be that simple, as Liberal democrat leader Nick Clegg has stated that his party would be willing to sit in a collation government. Whether the Lib Dems would be ready to follow along with the Conservative Party's initiatives is yet to be seen, but everyone agrees that Nick Clegg's emergence has brought a new dynamic to the elections which should lead to major ramifications on the direction of the pound.

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JPY

Following negative news from the EU, the safe haven yen was a big gainer early last week. However, those initial gains quickly dissipated as the week went by, and rising stock prices led to renewed risk appetite.

As such, it appears that Forex traders are becoming more and more worried about Japan's own burgeoning debt levels and credit rating. Also, with a weaker yen being a positive for the Japanese export economy, traders aren't expecting Japan to make any changes that could strengthen their currency.

Looking ahead, trading in the yen is expected to be influenced by news about Greece and the US's employment numbers. If either of those events is negative, it could lead to yen strength.

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