Euro Breaks Out, Headed Towards All Time Highs (page 2 of 2)

Next week, we fully expect the EUR/USD to make a run towards its all time high of 1.3850, which is less than 100 pips away.

With the European Central Bank (ECB) likely to keep interest rates on hold for the remainder of the year, the EUR/USD will once again become the anti-dollar. This means that weak US data will drive the EUR/USD higher while strong US data will drive the currency pair lower.

This has not been the case over the past few weeks because weak US data would lead to a flight to safety into US dollars and US treasuries. We have yet to see a material slowdown in Eurozone economic data and even though the central bank will probably not be able to raise interest rates again this year because of problems in the US, they still remain hawkish which is a sharp contrast to the Federal Reserve's expected monetary policy bias.

A number of ECB officials are scheduled to speak next week including its president, Jean-Claude Trichet. Even though there is a lot of economic data on the calendar, with the exception of Eurozone CPI, nearly all of these releases are Tier 2, or non-market moving.

Bank of England Leaves Rates Unchanged

The British pound is strong and will probably be a lot stronger in coming days thanks to the sharp contrast between economic growth in the US and in the UK.

Throughout the past two weeks, we have seen UK data surprise to the upside. In the US however, there could be no bigger disappointment than the one we have seen today. As much as the UK will fall victim to a slowdown in the US, given the country's current stability, the impact should be limited.

In the week ahead, expect the British pound to be in play. House prices, PPI, the trade balance and employment data are due for release. These are potentially market moving numbers.

Australian, New Zealand and Canadian Dollars Hit by Carry Trade Liquidation

The Australian, New Zealand and Canadian dollars all fell under the weight of liquidation. Even the Australian dollar, which has been supported by strong economic data gave back some of its prior day's gains.

There is no Australian data next week, but the RBNZ will be meeting to decide on interest rates so expect decent volatility in the New Zealand dollar. PPI and retail sales are also due for releases.

Over in Canada, housing starts, trade balance and manufacturing data are due out. Unlike the US, Canada reported stronger than expected employment numbers today; 23,000 jobs were added in August, which compares to the 11,000 rise in July.