Today sees the first week of a new month starting with the stock market dropping in the Asian session and continuing to fall through the European, amid renewed worries about the global economic outlook. The dollar is clearly getting stronger and it seems for now that investors are favoring the US currency as the safest asset. This week has crucial economic events which may determine the dollar’s direction and the futures and equities outlook.

The EUR/USD finally broke 1.26 in early trading, printing a new multi-week low of 1.2540. The latter level is holding as a support; however a clear break of 1.2530 may open the gates for 1.2470. Traders may not want to commit themselves for important breakouts before the important economic events, however in such a fragile environment, we may see stops getting hit and further downside arising. On the upside, as long as 1.2680 holds, it is clear that the pair will continue to trade lower.

Today the economic calendar has important economic data, with the UK's Manufacturing PMI being lower than expected and also Mortgage approvals, which also dropped. The economic conditions continue to deteriorate fast in the UK, which puts further pressure on an already weak pound. Analysts speculate the BOE will cut rates even more this week - possibly even to 0.50%. Also today we have ISM Manufacturing out of US, which is expected to come out lower, emphasizing how bad the economy is in almost all sectors. The dollar however, continues to benefit with or without bad data, as investors have decided that they can put their faith in the greenback as it seems to be the last currency to fail!

This week seems to have it all; the BOE and ECB rate decisions, which will be crucial for the euro and pound's direction and also Bernanke’s testimony in front of the Senate which traders will monitor for any hints as to how the bank is dealing with the crisis. Let’s not forget the most important event of the week either, the non-farm payroll. According to the latest estimates, the number may reach new highs – or should that be 'lows' - of minus 630.000. The employment sector is suffering so much; it bears comparison to the US Great Depression during the 30s.

Let’s see how New York opens and how we'll find the prices and whether the dollar reaches new highs against all major counterparts. So far, the pound has started out on a weak note and is likely to continue until the BOE’s rate decision. Let’s watch GBP/USD and how it behaves towards 1.40, which is a very good psychological support for now. A clear break of that level won’t be good for the pound's short term outlook and further downside may prevail towards 1.37 if the latter level gives way…