What an eventful week. US dollar buying came in wave amid Korean geopolitical tensions and as Irish debt woes quickly shifted market attention to Portugal and Spain. US dollar and JPY, by virtue of their safe haven status, rose against most currencies. The dollar rebounded in astounding force from its low in early Nov to hit above the 80 resistance mark.
EUR was bruised again, with a break of the 1.333 support. Ensuing weakness in the euro in the next few weeks shouldn't be surprising. What I have always find puzzling was the U-shaped recovery of EUR/USD after its mini crisis in May. Fundamentals have not changed. Had the stress test then managed to revive market confidence? If that had been the case, it's another testimony that financial markets are irrational. Everyone probably knew how credible the stress test was - stress shocks were questionable; with the assumption that the european banks would only incur losses in their trading books while banking books bonds would be redeemed at par and no presumption of a sovereign default(which is ironical for such a stress scenario). Perhaps Uncle Sam had also quietly rejoiced in that outcome for it provided a supporting driver to keep the greenback down, after he had failed to make China succumb to a swift yuan revaluation.
In the week ahead, a slew of economic data releases probably would make for a busy forex market. Market will be watching the US NFPR on Friday to see if FED is likely to complete its QE2 or maybe going to call for another QE3. China will also release its manufacturing PMI which can induce volatility especially in asians markets.
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