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The U.S. economic rescue plan of Bernanke and Paulson, as well as the Existing Home Sales figure, has caused frenzy in the market recently. Yesterday, the greenback underwent a volatile trading session against most of its currency counterparts. Starting the early trading sessions off rather flat, the USD’s value suddenly dropped following the 14:00 GMT announcement of the Existing Home Sales indicator as it came out worse than forecasted. Correcting this move, however, was the jump in value directly after Paulson and Bernanke’s testimonies late yesterday afternoon. It finished the day around the 1.4670 level against the EUR, slightly stronger than it was the day before.

The trading day began with small downtrends and low volatility for the USD as investors realized that the U.S leadership is having second thoughts regarding the financial bailout plan. Yesterday, Federal Reserve Board Chairman Ben Bernanke testified to the Congressional Joint Economic Committee stating that global financial markets were under extraordinary stress and threatening an already weak U.S. economy. He also testified that lenders are still more likely to remain cautious about extending credits to households and businesses, and described a gloomy economic outlook for the near future. However, it seems that Bernanke’s decision to urge Congress to confirm the rescue plan was enough to trigger an uptrend for the USD later in the afternoon. This uptrend was strengthened by a continuation of the steady decline in Crude Oil prices, which fell to $105 a barrel after spiking to as high as $109 after the USD’s early-afternoon weakness.

As for today, a batch of data is expected from the U.S. economy. So long as no crucial decisions regarding the bailout plan are made, these figures are expected to set the tone for the USD’s pairs and crosses. Special attention should be given to the New Home Sales survey because if it delivers unfavorable figures later today, it will validate a problematic landscape in the U.S. housing sector, and the USD is likely to weaken as a result. Also today, the Core Durable Goods Orders and Unemployment Claims are scheduled which should also have an impact on the market.

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Intra-day gains in the dollar on a better-than-expected U.S. Existing Home Sales report tended to be short lived even though stabilization in the U.S. housing market is seen as critical to ending some of the concerns on the U.S. economy. The dollar finished yesterday’s trading session with mixed results versus the major currencies while staying relatively unchanged against the EUR ultimately closing at 1.4709.

Still, lingering concerns on problems at U.S. mortgage finance companies Fannie Mae and Freddie Mac are keeping housing data at the forefront of investors’ focus for this week. Data on New Nome Sales for July and 2 surveys of Nationwide House Prices are expected to be released today.

Meanwhile, Federal Reserve Chairman Ben Bernanke spoke on financial stability at the Kansas City Fed’s annual Jackson Hole conference. His commentary didn’t necessarily reveal anything new, though he did say that the recent decline in commodity prices, as well as the increased stability of the dollar, has been encouraging. If not reversed, these developments, together with a pace of growth should lead US inflation to moderate later this year. Analysts estimate that longer term prospects for a stronger USD remain intact given that the United States is likely to overcome the problem of slower growth sooner than other nations. The general sentiment towards possibly lower Interest Rates and towards the U.S. economy managing to get out of the global crisis earlier than the other economic areas will probably support the dollar over the next couple of months.

In today’s housing data investors will look for clues on whether the battered property market is indeed stabilizing - which would be a relief for both the economy as well as for hard-hit US financial firms holding mortgage assets.

Later today, the FOMC Meeting Minutes from the Federal Reserve’s August meeting may also be the event to watch. This record of the FOMC’s latest meeting is expected to provide insights into the economic conditions that influenced member’s vote on Interest Rates as well as offering clues on the possible outcome of future votes.

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