The dollar was all over the place last week as the euro correction ran out of steam and the appetite for risk fluctuated.  Apparent weakness of the yen reversed, while weak fundamentals sapped the pound. Expect consolidation this week, with the euro seeing slightly more risk on the upside.

The dollar put on a good performance last week in line with the stock indices on liquidation of long-term short positions, and on relief that the worst of the credit crunch and of the financial crisis is over. That’s nice, only that the recession is in its budding stages. That on its own doesn’t mean the US currency has to decline, but expect more shocks, as consumer confidence/spending will only worsen. Watch out for some more short term strength for the dollar.

The dollar made some spectacular gains last week primarily on relief/hope that the worst of the subprime disaster is over. Maybe. But recession is looking us in the eye and while the dollar doesn’t do all that bad during these periods, it is premature to call the end of its long-term downtrend. This week could prove crucial for new-found strength of the dollar and weakness is likely early in the week.

The dollar is trying to regain its footing amid (new) hopes the worst of the US financial disaster is over. That’s premature.  The US currency is oversold and some significant retracement is likely. But buy it only on a confirmation.  

The dollar made little progress during the past week, while the appetite for risk changed from day to day. Only the pound made a discernable move, sinking across the board amid UK housing prices and the tacit OK from the government. The dollar remains weak and there is little hope to look for a sustained recovery while the oil flies through the sky. The dollar should trade all over the place and focus should be on the pound and yen crosses.