US Dollar Set for Further Gains Against Euro, Australian Dollar

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The US Dollar finished the week sharply higher against all major counterparts except the Japanese Yen, rallying on similarly dramatic declines in the US S&P 500 and other key financial risk barometers. Forex traders were especially aggressive in pushing the Greenback to fresh 14-month highs against the downtrodden Euro. Continued Euro Zone fiscal crises led to incredible single currency losses against the safe haven US Dollar and similarly risk-friendly Japanese Yen. Noteworthy surprises in US economic data likewise supported the case for Greenback strength, and short-term momentum plainly remains in the US Dollar's favor.

Limited US economic event risk suggests that financial market risk dynamics will continue to dominate US Dollar trading, and downward momentum in the S&P 500 and other key asset classes support the case for USD strength. Noteworthy fundamental data releases will be limited to US Trade Balance, Advance Retail Sales, and University of Michigan Consumer Confidence reports. The first rarely forces substantive reactions out of US Dollar pairs, and it will arguably be more significant to watch for surprises in Advance Retail Sales and U Michigan numbers.

Recent US Nonfarm Payrolls data showed that employers added a net 290k jobs in the month of April. Combined with strong upward revisions to previously-released numbers, NFP results helped build the case for a sustainable recovery in hiring and relief for the US consumer. Whether that will translate into increased expenditures remains to be seen, however; consumer spending accounts for approximately 70 percent of US Gross Domestic Product and a recovery is critical for economic growth. We will subsequently watch upcoming Consumer Confidence and Advance Retail Sales data with special interest.

US Dollar traders should otherwise keep a close eye on any and all developments out of the Euro Zone and recently-skittish financial markets. The Dow Jones Industrials Average lost nearly 1000 points through Thursday afternoon and finished the week sharply lower despite a noteworthy bounce. Market news sources blame the almost-inexplicably violent decline on a broad array of potential culprits—ranging from rioters in Greece to a mysterious botched order to sell S&P futures contracts. Whatever the root cause, we saw exactly how skittish markets can become at the first sign of trouble. If we see any similar flare-ups in the week ahead, the US Dollar could almost certainly set new highs against most except the Japanese Yen.