After a long weekend, the weekly trading session started off with EUR/USD trending in anticipation of key economic indicators.  Majors experienced heavy volatility heading into Wednesdays first ever Federal Reserve press conference headed by The Chairman of the Fed, Ben Bernanke.  The Chairman suggested that the risk for inflation has seen a marginal spike although stressed that it remained under control as the Fed planned to continue its loose monetary policy by keeping interest rates low. His speech was followed by a massive selloff in the dollar against major currencies with some pairs reaching historic highs. The AUD/USD came within 20 pips of touching 109 while the EUR/USD began its ascent towards 1.50 before abruptly retreating.

The dollar spent much of the final 48 hours of the week battling to regain ground lost. Despite uninspiring GDP and employment data, the Greenback rallied against majors such as the EUR, GBP, and CAD.  The Dollar also rolled back from some of its record lows again the AUD & NZD respectively.

The next few trading sessions should be telling as the Dollar continues to flirt with historic lows. Momentum against the dollar appears to be stalling for the moment however perception can be a fickle, slippery slope.

The demolition of the greenback continued overnight following yesterdays FOMC, however by morning the tide had turned and the dollar was mounting a serious comeback. The dead cat bounce ran into some resistance when less then stellar GDP and employment data was released however before most traders could digest their lunch the USD once again exposed its horns and was charging forward. This lifted the dollar off its record lows against the AUD & NZD.

The George Washington also gained ground on the EUR, GBP, and CAD. By day’s end the USD’s gains remained modest however they did none the less remain. Traders are eager to see if this trend will continue tomorrow or will the Dollar start to retreat towards lower lows. Tonight’s EU session will be a key indicator.

Federal Reserve Chairman Ben Bernanke held the first ever press conference today in the central banks 97 year history and announced that the US Fed will continue to stimulate growth by keeping interest rates low.

The Chairman of the Fed went on to say that while inflation risk has seen a marginal spike, it remains low and under control. This caused traders across the board to dump the USD. The sell off sent the dollar to record lows vs. most other currencies. The US equity markets found the news promising and edged out just under a triple digit gain. Gold also touched a new high.

Break out pair of the month – AUD/USD came within 20 pips of touching 109 while the EUR/USD geared up for another potential run towards 1.50.

Bernanke acknowledged the USD’s recent fall by stating that “a strong, stable dollar is in the best interests of the United States and the world economy” but that stimulating the US economy would be more helpful for the greenback.

Today we saw market behavior similar to what we often see prior to a FOMC press conference and Federal Funds Rate announcements. The market showed volatility as usual and most currency pairs moved in a back and forth pattern as traders await and anticipate the news releases.

This volatile environment is expected to last until the FOMC statement is released and the rate decision is announced. Secretary Geithner mentioned today that a strong dollar is in the best interest of the US economy and that US will not work to push down the dollar in order to achieve better growth.

The Fed has kept the interest rate at its lowest level for an extended period of time. The economy is growing slowly but steadily and since inflation is subdued, there is no pressing need to raise rates.

The stock market prefers a low interest rate environment as it spurs borrowing and growth in the markets. The Fed is trying to keep rates as low as they possibly can to help the markets pick up steam. We also should be aware that many analysts expect the Fed to announce that the rates will stay the same but will not use the words EXTENDED PERIOD in the statement as they have for some time. Many traders expect that the above statement is already digested in current exchange rates.

After a long weekend where equity markets around the world were closed on Friday, the US dollar saw some volatility in most of its pairings today. The EUR/USD ranged between 1.4525 to 1.4626 due to higher commodity prices, mixed US data and lower stock prices.

Gold and silver prices hit all time and yearly highs respectively this morning settling at $1,507 and $46.99 as traders saw an opportunity to take advantage of a weaker dollar and speculating a hedge against inflation. March new home sales data was positive jumping more than analysts expected to 300k in annual sales units. The Dow Jones and S&P 500 closed lower -26.11 and -2.13 respectively.

Things to consider watching include this week’s FOMC 2 day meeting and the announcement they may make regarding a decision to either raise or leave the Federal Funds Rate alone at 0.25%. Also, there will be an important Gross Domestic Product number released on Thursday where we can see whether there was growth in the economy over the past 3 month period.

As we head into tomorrow’s holiday, trading volume has been on the decline throughout the day. The US dollar continued its slide against most majors, hitting a monthly low of 81.61 against the Japanese yen, continuing to be hampered by deficit worries.

The GBP surged to a new high of 1.6599 against the dollar as several reports released today hit their targets. Household spending in the UK increased 0.2% in March, beating the negative expectations of a 0.4% decline. Public sector net borrowing figures came out as well, showing an increase of 16.4 billion. As the positive news piles on, there continues to be increasing sentiment that we are going to see a rate hike from the BoE, projected by some banks as a 0.5% increase over the next 12 months.

The Euro gave back some of yesterday’s gains as ECB President Trichet stated during an interview that the ECB Governing Council has not decided on any rate hikes, pointing to continued uncertainty regarding sovereign debt crises that continue to affect countries throughout the zone. If the ECB continues to downplay the likelihood of any near term rate hikes, the EUR/USD could start to reverse.

The USD/CAD hit a new yearly low today as well, dipping to 0.9453. A 0.25% rate hike from BoC is beginning to be priced into the currency for the May 31st decision, and if report numbers continue to come out strong in Canada, such as the household spending figures which are expected to show an increase of 0.5% in February, there may be pressure for an even bigger hike.

If you have a long weekend that starts tomorrow, enjoy it!

Commodities and equities rallied across the board today. Spot gold, XAU/USD, touched $1500 for the first time ever lifting AUD/USD to 107. The Canadian dollar flew higher on crude oil strength. Risk appetite came back in a big way as US corporations reported strong earnings and chip maker Intel raised its earnings outlook for the future. The EUR/USD climbed above 1.45 to hit a 2011 high, supported by the Spanish bond auction and investors willingness to take on risk in the marketplace. The USD/CHF broke and traded below 89, marking a new high for the Swiss franc.

S&P yesterday announced a negative revision in the United States’ long-term credit outlook because of the US budget deficit. Simply put, the US has a lot of debt and must ensure that the budget deficit is reduced in order to meet the obligations of debt repayment in the future.

The market reacted strongly to this news as the EUR/USD dropped from around 1.4430 to 1.4250 levels and gold futures rose to $1500 for the first time in history this morning, with XAU/USD hitting a high of 1499.93. Gold is of course considered a safe haven in any financial crisis. Today there was some positive news as Secretary Geithner announced that he sees progress in movement towards an agreement to reduce the budget deficit and the number of new building permits for new homes was released, coming out above forecasts. This created some support for the EUR/USD and for USD in other currency pairs.

The market has showed some signs of confusion since this morning’s open. There is some uncertainty about how this news affects the EUR/USD as we often see bad US domestic economic reports having a negative impact on the eurozone economies as well.

A volatile trading day to start the week. Early during the US trading session news came out of the ECB regarding the debt problems certain countries are facing. We saw the EUR/USD start out around the 1.4425 area to open the trading week and hit lows of almost 1.4150 throughout the day.

The big mover of the US dollar today, strengthening the currency, was the news from Standard and Poor’s regarding the outlook on the credit rating of the US Government. What they mentioned was that US policy makers may not be able to get to an agreement on long term budget issues as quickly as they think, and in the short term there will be difficult fiscal challenges. This triggered a drop in equity markets and in most commodities other than gold. The Dow Jones Industrial dropped 1.14%, the S&P 500 dropped 1.1% and crude oil fell to $107. In effect, the risk aversion trade was on and the dollar saw strength in the session.

Majors and deep trending swings were the flavors of the week this week, with the USD appearing to have last licks. EUR/USD started out the week ranging with the dollar rallying on Monday due to lower commodity prices and a $3 drop in Oil futures during the New York session. Optimism was short lived however as investors remained skeptical. Their austerity proved fruitful as the EUR rally which took hold later that evening continued Wednesday as confounding US retail sales helped push it to a 16 month high. This trend continued until an abrupt turnaround Thursday in anticipation of key economic indicators which created one of the week’s major swings. The USD swung nearly 200 pips ahead of US Jobless Claims and the Producer Price Index (PPI). Disappointing numbers led to a huge pullback in EUR/USD further prolonging the weeklong ranging trend. Friday’s trading appeared no different as CPI numbers came out at their expected level and the dollar gained back some ground to leave it at just about where it started the week off.

On Tuesday Japan decided to raise the Nuclear Crises Severity level to 7 placing it on par with the Chernobyl disaster, and led to selloffs in riskier currencies. The Japanese Yen and Swiss Franc were buoyed as investors sought to place their assets in safe heavens.

We also saw the release of the Consumer Price Index from China, which hit 5.4%. This is an indication of higher inflation expectations, and many fear a rate hike in China could lead to slower global growth.

This week may see additional movement on the EUR/USD pair. Key indicators from an array of European countries are set to come out which should highlight the health of some of Europe’s economic workhorses. US Unemployment claims can be expected Thursday morning and may potentially cap off what appears to be an exciting week!