Rise of the Dollar? Forex Week of March 4 2013
During the previous week, we have seen a substantial and sustained sprint towards the perceived safety of the US dollar. The markets have been rocked by the Italian elections, and the inability to pick a government by the populace. Essentially, there is a “hung parliament” in Rome at the moment, and nobody seems willing to form a coalition. The markets reacted violently, and sold off risk as a result. The EUR/USD pair has been hammered as you would expect, but what is even more telling is the US Dollar Index. As you can see on the chart below, the market has broken out. Remember, 40% of this contract is based upon the EUR/USD pair….
Because of this, we expect to see continued Dollar strength against most other currencies and commodities in the coming week. One thing that will truly be interesting is what the Non-Farm Payroll numbers bring to the table on Friday, and how the market interprets them. The most likely pairs to see volatility based upon this report will be the USD/JPY and USD/CAD pairs. The USD/JPY pair will more than likely break above the 95 handle if we see a print of more than 200,000 jobs added in February. However, if it is more along the lines of the expected numbers – estimated as 160,000 – then the USD/JPY pair will more than likely see continued consolidation between the 91 and 95 levels. In the USD/CAD pair, the market will fall if the number is good, and rise if it isn't. Both pairs look ready for a serious move.
Looking at the overall markets, we see the GBP/USD as a potentially break down waiting to happen, and because of this we are watching the all-important 1.50 level. The market has absolutely decimated the Pound and it looks there is still more to come. After all, the weekly candle is a shooting star (a common continuation of the current trend pattern), which looks to be a sign of continuity of the down trend. With this being said, the GBP/USD pair could really fall apart if we get below the 1.4950 level.