This Week's Currency Battle Will Be the Weak Vs. the Weaker

Last week the Euro bounced back up against the US dollar after two prior weeks of decline. EUR/USD began its rebound when it touched expected support around 1.5280, and now nearest resistance lies around 1.5510, 1.5550-60. Bearish momentum may ensue should it fall below 1.5340.

The US dollar had its first weekly drop against the Swiss franc in a month, falling to 1.0390 from its rally peak of 1.0630. A support base could be found around 1.0340-50. One notable bearish performer last week has been the British pound, which had its first weekly decline in a month against the Euro, and third straight week of decline versus the US dollar. Traders are speculating that the Bank of England may have to cut interest rates again next month on weak UK manufacturing data and the lowest consumer confidence in four years.

We are still continuing to see cracks in the US economy. US stocks fell last week on poor profit earnings of big US corporations, one of which is the insurance giant AIG (American International Group) (AIG) which reported Thursday a shocking record loss of $7.81 billion, or $3.09 a share, for the first quarter, following a $5.3 billion loss in the last quarter of 2007.

The US economy could still be heading towards a recession, but how will that impact the US dollar which has been rallying against major currencies in the past few weeks? The US dollar could get short-term support from last week’s trade data, which showed that US trade deficit narrowed more than forecast in March, which is not bad news. But dollar moves this week will depend on US economic data relating to inflation, retail sales and manufacturing. If stocks react negatively this week, we could see a further advance of the Japanese yen against high-yielding currencies like the Euro, Aussie, Kiwi etc.