US dollar was up to 12-year highs as the US dollar index (DXY) touched 100 levels at the end of last week. Currency traders know very well that every significant big move calls for a small pullback...

USD

US dollar was up to 12-year highs as the US dollar index (DXY) touched 100 levels at the end of last week. Currency traders know very well that every significant big move calls for a small pullback – in fact at the start of the current week the USD was seen giving back some of the gains seen last Friday, as it retraced close to 50% of Friday’s move higher.

However up till now these pullbacks were only short term as the buck continues to garner support on the back of the Fed’s divergent monetary stance (a monetary policy that stands out when compared to much of the rest of the G8 peers) - so far the USD seems unstoppable.

A key USD-motivator will certainly be Fed’s tone and choice of words next Wednesday. The FOMC will communicate its rate decision on the 18th March at 1900hrs and more importantly Fed Chair Yellen holds a post-FOMC press conference a few minutes later. A lot of hype is building around the word “ Patience” and on whether the Fed will choose to either keep this term in Wednesday’s communication or else drop it. If it does drop this term then the US central bank may be in to raising rates as early as next June and will probably highlight that they will rely on data in order to pin the timing of future hikes.

EUR

EURUSD remains in freefall after digging deeper into 1.05 region as it tested 1.046 late last week. It looks like the possibility of this currency pair moving down to parity remains very much in the cards. From here, if the bearish trend continues it looks likely that the next target would be the 1.02 area as we approach a re-test of a pivotal trend line that we had broken above on the 3rd of February this year.

In the meantime last week the ECB started its asset purchases program and this, as could be anticipated, dealt a significant blow to the single currency. The Euro was down -1.50% in the last week, when seen against a basket of currencies according to the Bloomberg Correlation-Weighted Currency Index (BCWI). Early into this week the euro managed to restrain its losses and found a bit of a foothold as it seems unlikely traders will push for fresh levels prior to the Fed next Wednesday. Concerns over the pace of euro weakness expressed by a member of the ECB governing council also helped the euro’s consolidation.

Apart from the Fed announcement, this week we also have scheduled some high impact data which includes the publication of the last meeting minutes from the RBA, BoE and the BoJ, we also have EZ CPI, UK Unemployment, and also 4Q (Y/Y) GDP reading from New Zealand.