US Dollar Expected to Rebound This Week (page 2 of 2)

Canada did not release any economic data, but the currency still managed to incur its biggest one day slide in three decades. On Friday, we had said that fundamentals, technicals and sentiment all pointed to a reversal but we did not expect the majority of the move to happen in one day. Although we could see further gains, parity will be an exceptionally hard level to break in USDCAD. Australian business confidence is the only piece of data due for release from any these three countries over the next 24 hours. With the Dow closing at its session lows, there could be further losses.

Euro: Be Careful of What You Buy
Depending on which currency pairs you traded today, you could have made money being long Euros. On Friday, we had said that the better buy this week may be relative strength plays like EURGBP or EURCAD than the EURUSD itself because of the risk of stronger US data. Interestingly enough EURGBP and EURCAD were two of the few currency pairs that are actually up on the day. In an environment where we have a potential for a dollar rally, the dollar's biggest gains would be against the currency pairs whose rise have been driven mostly by speculation and flow rather than economic data. This is the case with the British pound which reported only downside surprises last week and the Canadian dollar, which has rallying on the belief that oil will reach $100 a barrel. Although this trend could continue, tomorrow we should have some Euro driven movements with German GDP, the ZEW survey and Industrial Production due for release.

British Pound: Down 400 Pips
Even though inflation in the UK rose by the fastest pace in 1 year, the British pound fell 400 pips today. Last week the British pound rallied 300 points despite signs of weaker growth and it is not until this week that price action finally reflects fundamentals. This is more obvious when we look at EURGBP. After range trading between 69 and 70 cents for the past 2 months, we finally see a strong break to the upside. The ECB and BoE face similar inflationary conditions but the ECB could realistically raise interest rates given stronger economic data but the BoE does not have much choice other than to keep rates unchanged for the foreseeable future.