There are a few major U.S. economic releases due this week, such as the CB consumer confidence data and the ISM manufacturing PMI, and these could either confirm or reverse the pro-dollar bias that the FOMC meeting minutes resulted in last week. Recall that the monetary policy committee members suggested overlooking the previously set inflation and unemployment targets and considered a gradual withdrawal or tapering off of their asset purchase program. Federal Reserve Governor Ben Bernanke is also set to give a speech towards the middle of the week and, since this is a semi-annual testimony, it could have a huge impact on price action. Indications that the Fed will soon start to reduce their asset purchases could continue to fuel the dollar rally while retractions or opposite signals from economic data could force the Greenback to return its recent gains.
Italian elections are still going on in the euro zone and it seems that the odds are tilted towards a less favorable outlook. If early polls show increased chances of a political stalemate, the resulting uncertainty and unstable leadership could keep weighing on the euro. Additionally, ECB Governor Draghi has a speech later this week and he could comment on the recent weaknesses in the euro zone. The other week, the region printed weaker than expected GDP then suffered a bout of poor PMI figures last week. The European Commission also remarked on the possibility of worse than expected economic performance in the region for the entire year. EU officials believe that the economy will shrink by 0.3% in 2013 and that unemployment will keep going up.
The U.K. just received a debt rating downgrade from credit rating agency Moody's on Friday. As a result GBP/USD gapped down over the weekend as Asian session and London session traders will start to incorporate their reactions today. According to the statement from Moody's, the U.K. is likely to face weaker growth in the near term and that the BOE might need to expand their asset purchases just to keep the economy afloat. BOE Governor King already expressed the central bank's willingness to do so, which has already been weighing on the pound for the past trading weeks.
Yen pairs have been moving more cautiously these days as traders await Prime Minister Abe's appointment of the next central bank head. If he appoints one that favors a weak currency in the country's battle against deflation, the yen could resume its selloff against its counterparts. Among the three candidates touted to take the BOJ helm is Muto, who is expected to be the most bearish for the yen.
There are several medium-tier data due from Switzerland this week. With the euro and the pound suffering sharp selloffs as their central banks favor loose monetary policy, the franc has been emerging as the safer currency in Europe. However, SNB head Jordan already talked about keeping the franc down, which explains why traders are still hesitant to park their money in the Swissy.
Commodity Currencies (AUD, CAD, NZD): Neutral
There are no major economic reports due from Australia, Canada, or New Zealand this week, which suggests that these currencies could trade sideways against the dollar, unless there are market-moving data from the U.S.
by Kate Curtis from Trader's Way