Can Dollar Turn Bearish Trend into Bullish?

The US dollar did not fare well last week as Forex traders demonstrated appetite for risky currencies despite worrisome news from China and Ukraine. Can the greenback turn the bearish trend into bullish this week? Possibly.

The most important event that should drive the FX market and the US currency in particular this week is the monetary policy meeting of the Federal Reserve on March 19. Economists speculate whether the Fed will continue to reduce the size of monthly asset purchases, but the consensus is that Fed Chairperson Janet Yellen will indeed proceed with stimulus reduction at the planned rate. If this is the case then the dollar will likely rally. Additionally the Fed will release its economic projections – another vital piece of data that should affect performance of the US currency.

As for other data from the United States, there will be quite a few economic releases this week, including inflation, housing and employment reports. The Consumer Prices Index is expected to stay at 0.1 percent. The housing market should demonstrate improvement according to forecasts. Analysts predict that unemployment claims will show an increase from 315,000 to 327,000. The dollar suffered last week from poor economic data.

The news outside of the United States looks positive for the greenback as concerns about slowing China’s growth and worries about the outcome of the Crimean referendum should attract investors to safer currencies. Surprisingly enough, it was not the case at the start of the current trading week as the market was in a risk-positive mode, making traders prefer currencies with higher beta. Yet the market sentiment is a fickle thing and fears may easily return especially as the story of secession of Crimea from Ukraine will unfold, pitting the West against Russia.

DailyFX is bullish on the dollar, saying:

While reviving the safe haven status of the dollar through an extreme need is the most effective means for reviving the currency’s strength, there is also potential for the FOMC rate decision on Wednesday to spur appetite.

Forex Crunch cited six reasons for the Fed to continue taper and is bullish on USD versus EUR, AUD and CAD, while being bearish against NZD and neutral against GBP and JPY.

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