The next couple of weeks should see a number of new events both out of the US and Europe which could make for interesting times for the US Dollar. Two weeks ago, we saw a late week rally of the US Dollar. Is this a beginning of a larger reversal?
Today, US Non Farm Payrolls (NYSE:NFP) will be widely watched by Forex investors. As a rule of thumb, the first 7 days of a new month usually signal the direction of a Forex currency pair and during this time period a trend is usually picked up and the pace of the price action is set.
What can cause the Buck to strengthen or weaken?
Let us look at two examples:
Germany's Finance Minister, Wolfgang Schaeuble compared Greece to a "bottomless pit." His claims that Greece will go bankrupt inflamed the Greek people. Greece's President, Mr. Karolos Papoulias, openly attacked the core of the Euro zone. "Who is Mr. Schaeuble to insult Greece? Who are the Dutch? Who are the Finnish?"
When risky assets such as stocks and commodities decrease in value, this will generally lead to the strengthening of a safe haven asset, like the US Dollar.
Alternatively, should these same risk classes move higher, a safe haven like the Dollar will lose value as investors flock to the higher yielding and riskier assets, like equities.
In closing, the NFP report will be key. Market expectations are being fueled as investors are following this closely watched report. Recent numbers have shown unemployment to be on a downtrend as job growth has been modestly growing. This is indicating an improvement in the US economy. Any surprises, as in the NFP misses expectations, might cause an unwanted market shock.