The dollar is weak across the board, amid return of risk appetite and a euro bullish sentiment back in line with better than expected consumer confidence in the Euro zone earlier today. Markets are slightly mixed since the European opening as better earnings prompted some gains, which drove DOW JONES up more than 100 points at the time of writing.

The EUR/USD is trading heavily since yesterday and the pair has kept 1.30 for now, although we saw a brief move below at 1.2960. The speech by Trichet which essentially told traders that the bank is not to cut below 1%, together with better than expected EU data, gave euro bulls the excuse they needed to push for 1.32 once again. For now, the next level to watch is 1.3320 ahead of 1.3270 which if it gives way; the pair may head back up to 1.34.

Today's economic calendar gave us better than expected Euro zone data, while the UD GDP contracted badly once again. Later on we have the FOMC rate decision where rates are widely expected to be unchanged; however investors fear Bernanke's statement and its relation to the current economic crisis. Let’s not forget that last month the dollar weakened heavily after the bank announced they purchased US debt of more than 300 billion dollars in order to revive the economy. This time we see the dollar weakening before the announcement and it makes one wonder if traders are selling the rumor and then potentially buying the fact.

The market sentiment has been low since the beginning of the week, partly to do with the swine flu outbreak which hit the media, which made investors wary of its potentially grave outcome, on the already battered economy. Today the WHO announced that the number of deaths were exaggerated by the media or miscounted in Mexico and therefore we saw some kind of relief in stocks and equities and he dollar losing its safe haven status.

It is so obvious that market participants are trading their emotions these days and not actual economic events and that is the outcome of risk aversion which always seems to come back and control the moves. For now, we need to watch how the FOMC meeting plays out and although we don’t expect to hear anything new in the statement, it will be interesting to see if there are any signs of admission from the FED that economy is on the way to recovery.

Next week we have some very important events including the ECB and BOE rate decision and also the payroll numbers, which will indicate how much the employment sector, is under-performing. We cannot really talk about economic recovery in US just yet, as the numbers we get are still negative and although we have a few surprises on the upside every now and again, we need to see good numbers reoccurring every month in order to say that recession is ending…