US dollar still under pressure around psychological level of 1.5000 against euro

This week is packed with scheduled statements from key officials from the United States, which will be crucial for the evolution of the greenback in the coming weeks. The chairman of the Federal Reserve, Ben Bernanke, will speak twice this week.

The release of the recovery plan schedule is in the minds of investors, especially with the earning season for companies in full swing. The market will take reference to the following two facts:

First, the tone of the last FOMC meeting minutes, because interest rates have been historically low for a prolonged period. Mr. Bernanke will probably continue to reaffirm this view. Secondly, the purchase of MBS (mortgage-backed security or value of real estate backed assets) of the Federal Reserve should continue at a fast pace and the FOMC hinted at the possibility of expanding the programme, if new signs of deterioration in the housing market emerge.

The market will take as reference the latest events and react strongly if it sees any changes. If no changes are noted, the dollar should continue to weaken; the psychological barrier of $1.50 to €1 should be reached this week. The current high levels of the single currency, that worry some investors, should stimulate the market to begin to position itself for selling in the 1.5000 area against the US dollar.

The BoJ said that the Japanese financial system remained stable overall; it sees signs of economic recovery in Japan and expects a weak economy in the rest of the world. The market attention is focused on the intentions of the BoJ on its recovery plan programme.

Investors will be paying close attention to a confirmation of a change in policy of the new government, which could adopt a more interventionist position; a direct action on the foreign exchange market to contain the rising Japanese yen. The range 87.00 - 91.00 should continue to be monitored.

As for the United States, the statements of various officials from the Ministry of Finance will drive the market.

The sterling regained some color last week following the surprise cut in the UK's unemployment rate in September and rumours of acquisition of the distributor "Sainsbury" from an investment fund backed by the royal family of Qatar. Doubts in the markets have surfaced following both these positive news, causing a panic effect on sterling, and it is again trading at 1.6400 after finding support at 1.5700 against the dollar. Against the euro, sterling also regained some strength and is now trading close to 0.9150, after testing 0.9400.

The market will be focused on the minutes from the BoE's last monetary policy meeting today and the statements from BoE governor, Mervyn King. However, economic prospects remain pessimistic in the UK, as shown in a study of a British firm which expects growth of the British economy to barely reach one per cent in 2010. According to this study, with consumers repaying their debts and a tax policy that will inevitably be tightened after the elections, it is difficult to see any potential for a sustainable recovery in domestic demand.

The current rebound of sterling against the dollar at 1.6400-1.6600 should attract many investors to reposition downwards.

This week, which is full of statements, could be crucial for medium-term fluctuations in major currencies.

Upcoming FX key events:

Fed Chairman Ben Bernanke will be speaking on two separate occasions and exit strategy timing will likely be on the minds of investors, especially with the earning season in full swing. Bank of England Governor Mervyn King will also be speaking this week and he will likely be careful on any comments on the Sterling due to his perception of market misinterpretation of prior comments. Bank of Canada and Riksbank are expected to keep rates unchanged on Tuesday and Thursday. Minutes of the RBA meeting and BoE could be moving the market as well. Key data include - US housing starts, UK retail sales, Euro area PMIs, German IFO, UK Q3 GDP and US existing home sales.

FX Technical Key points

EUR/USD is bullish, target 1.5000, key reversal point 1.4850.

USD/JPY bearish, target 87.10, key reversal point 91.70.

GBP/USD is bearish, target 1.5050, key reversal point 1.6600.

USD/CHF is bearish, target 1.0100, key reversal point 1.0360.

AUD/USD is bullish, target 0.9850, key reversal point 0.8750.

NZD/USD is bullish, target 0.8200, key reversal point 0.7170.

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Mr Longchamp is head of trading at RTFX Ltd.

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