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The past week has proven that the greenback is consolidating at its current levels against the major currencies. However, the USD is constantly attempting to break through these current levels and it appears that a bullish breach seems far more likely than a bearish one.

Last week was filled with negative data from the U.S economy. The Producer Price Index (PPI) dropped for a third month in a row, landing on -2.8%, proving that consumers in the U.S are in a slump. The Building Permits survey dropped to a mere 0.71 million new permits that were issued in October, dropping for the fifth consecutive month. The housing sector in the U.S is one of the best gauges of the deteriorating economic condition as fewer banks are willing to provide a new mortgage which means fewer citizens are purchasing new homes. Last but not least was the Unemployment Claims figure, which reached 542K individuals who filed for unemployment insurance for the first time during the past week.

However, despite the unfortunate figures, the USD is refusing to slide. As stated here many times before, investors are currently seeing the negative data from the U.S as a pitfall for the leading economies, which will suffer greater from the ongoing decrease in U.S spending.

As for the week ahead, a batch of data is expected from the U.S economy. Traders should keep a close eye on four different indicators. First is the Existing Home Sales, which will be published today and will provide additional information on the U.S housing sector. On Tuesday, consumer related data such as the Preliminary Gross Domestic Product (GDP) and Consumer Confidence report are scheduled and will likely provide a better landscape of the consumers’ conditions in the U.S. Lastly, on Wednesday, the Unemployment Claims figure will be announced.

Forex traders should bear in mind that the last few weeks have shown that the U.S Dollar seems to be strengthening as a result of negative U.S data and not the other way around, which results in a type of pricing bubble. At some point the USD will meet an end to its recent bullish run.

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Yesterday, the Dollar gained as investors withdrew from emerging-market assets to the safety of U.S. government debt, in what is set to be the worst financial crisis since the Great Depression. However, while the greenback has appreciated against high-yield currencies, it fell against the Yen. Yesterday’s U.S. jobless data intensified concerns and signaled more trouble for the labor market, which has shed more than 1 million jobs so far in 2008. The report showed that the number of Americans filing for first time jobless benefits spiked to 542,000 last week, more than analysts had expected.

The Dollar advanced against a basket of major currencies, as investors reacted anxiously to the recession by removing their money from risky assets, such as stocks, commodities and high-yield currencies and investing their money in U.S. government bonds and Japanese Yen, which many are borrowing cheaply to finance investments elsewhere. As a result of disappointing U.S. economic data, the USD depreciated against the JPY. Analysts forecast that the bear market will probably continue lending more support to the Japanese Currency. The USD was last down 0.9% at 95.01 JPY; while against the EUR it was at $1.2514.

Meanwhile, concerns regarding the prolonged U.S recession continue to influence the markets. Investors remain nervous about the U.S. automakers, which are seeking $25 billion in emergency loans from Congress, and the viability of banking giant Citigroup, whose shares slid to a 14 year low on Thursday. Based on this data the Federal Reserve had issued a report stating that the U.S. economy is likely to contract in the second half of 2008 and first half of 2009, raising the prospect of a further reduction in the benchmark Interest Rates from an already low of 1%.

The situation in Europe and Asia appear to be even gloomier. Major central banks have been slashing Interest Rates aggressively in an attempt to boost their economies. Figures published this month show that Japan and the Euro-Zone already fell into a recession in the 3rd quarter. According to analysts this may lead to continued gains for the Dollar vs. most currencies, save the Yen.

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