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Will Bernanke Determine Dollar's Direction This Week?

by Lena 9. February 2009 00:47
With payroll data out of the way and traders waiting in anticipation for this week’s events, there is a feeling amongst market participants that this week may be important for the dollar's direction. It finished near its lows against the euro on Friday night, after the bad economic data out of US showed that -598.000 was lost in the space of one month. With unemployment rising and the ISM manufacturing contracting for several months now, it is clear the economy is deteriorating and may continue to do so for the time being.

The EUR/USD was trading heavily on Friday after the payroll data release, and there was a lot of choppiness in the pair due to investor uncertainty. The pair broke on the upside after the London closing but the move was not strong enough to reach 1.3030, which worked as good resistance. The next level to watch for now is 1.2870 which if gives way, may open the way for 1.2830 ahead of 1.28. Today with no important economic data out of either Europe or the US, we may see some consolidation in the pair and the ranges for now may be tight as traders will want to prepare for the week’s events.

The non-farm payrolls did not provide us with any further direction regarding the market outlook, as investors already knew the severity of the economic situation and how bad things are; however the fact that in a space of three months we had more than 1.5million jobs lost, makes everyone wary and reluctant to believe things may get better in the coming months. After it was announced by Obama's administration that a new rescue plan is in motion, investors found some kind of confidence that the new government is ready to take things to the next level and tackle America's economic trouble. We saw a brief rally in futures, equities and commodities, however it did not last long as the risk aversion returned in the markets and traders exited their risky assets once again.

Today's economic calendar is empty of important economic data; therefore as it is the Monday after the payroll data we may see some consolidation in the currencies and traders getting positioned for a busier week. With Bernanke’s testimony in front of the Senate tomorrow and retail sales out of the US later this week, traders will have the chance to weigh all economic events and decide which way they want to go for now. All eyes and ears will be upon Bernanke and his speech about the economic crisis and ways to solve the credit crunch, but if his words don’t provide any comfort for markets participants, we may see another wave of risk aversion taking over and dollar together with the yen gaining in the aftermath.

Let’s see how this week will play out and if tomorrow's testimony provides us with more clues as to what the economic future holds. Don’t forget that for now, the trading environment is very fragile across the board and therefore any rallies in all markets can eventually lead in sell-offs, as the sentiment is bearish and may be here to stay…

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