Further Dollar Strength Ahead?

As the week comes to an end, there is mixed feelings in the dollar camp, with the EUR/USD moving like a rollercoaster reaching 1.3610, a weekly high, then retracing the following day to 1.3470. From the start of the week we saw the dollar firming in most of the pairs and with the market eyeing up the CPI data and the Housing data, there was choppy trading all across the board.

After a poor CPI data result and a frankly awful NAHB housing index, the EUR/USD skyrocketed towards 1.36, which after it broke the level, immediately reversed towards support of 1.3570. However, yesterday the dollar bulls were happy again as more data came out of the US and Housing Starts were better than expected, the same with Industrial Production. The market was clearly caught by surprise as most forecasts predicted a bad number.

Today we had more news coming out which again was slightly mixed as Jobless claims printed a lower than expected number, but Leading Indicators was much worse than expected. By the time the better than expected Philadelphia Fed Manufacturing Index came, the market was buying the dollar all across the board, with EUR/USD dropping down to new lows for the week of 1.3470.

With most of the important data gone, the question is what happens now for the greenback? As we have mixed data almost every day, it’s hard to predict what the future will be for the dollar, and the market will need more signs in order to assess what the next move of the Fed will be.

Furthermore, another important event of the week was the Bank of Japan’s rate announcement which was once again unchanged and from what Fukui told the press there is no hurry at all for the Bank to hike its interest rates any time soon. This news along with a worse than expected GDP was welcomed with a hard sell off in all yen related pairs, giving the chance for EUR/JPY to print new lifetime highs once again and USD/JPY to break important level of 121. The curry trades become very popular again as rates differential grow even bigger with GBP/JPY becoming even more lucrative after the last rate hike of BOE.

Today is the start of the G8 meeting of Finance Ministers which will be monitored closely by the market for any mention of yen weakness or further global imbalances. If there is indeed mention of the recent weakness in all yen pairs then we might see a yen rally all across the board and maybe a chance of some curry unwinds which is widely expected to happen soon. However, if the G8 comes and goes without anything important being mentioned then there is scope for further yen weakness all across the board.

Look out for any breakouts in recent ranges in EUR/USD as it threatens the 1.34 level and if that breaks then there is a chance of further loss in the pair. For the moment the 1.36 level stands as good resistance level if that breaks then there is good chance of revisiting 1.3670, highly unlikely for now though as the negative dollar sentiment has calmed down a bit, so there is a chance of a consolidation towards 1.33 before that happens.