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USD Forecast to Continue Bullish as Market Uncertainty Rises Posted: 11 Feb 2011 11:00 AM PST With the US dollar still rising against its primary currency rivals, many expectations appear to point towards a continuation of strength heading into next week. But is this really the case? Recent dollar gains may be attributed to a number of factors. Among them are fluctuations in risk appetite from tensions in Egypt as well as renewed debt concerns in Europe; positive data out of the American economy; shrinking oil prices leading to cheaper transportation and industrial costs; and the rollover unwinding of USD short positions. Technical fluctuations and cycles also appear to have been a major factor over the past week, as a number of reports have shown. Heading into next week, however, we should expect to see three interrelated trends. First is an expected increase in liquidity from a dizzying array of economic reports next Tuesday and Wednesday. Most of these calendar events will carry a direct impact on currency values in the major economies of Britain, the United States, Switzerland, Australia, New Zealand, and the broader euro zone. Secondly, market uncertainty will likely rise next week. This is due to the aforementioned multitude of calendar events which will only give cause for an increased level of confusion about the direction of various economies. Some believe that more data adds more certainty, but history has often taught us that this is not the case when it comes to global economics. In short, more data means more points of information to hold in one's mind when making a decision for a trade. More mental clutter often leads to a decreased ability to accurately analyze the market. Third, the level of uncertainty, and thus risk aversion, will no doubt feed into the USD long positions opened over the last few days. This will also have the effect of driving commodity prices lower, or at least holding them steady through the middle of next week. The only element which will create an opposing trend in the dollar's value is if the majority of economic reports out of Britain and Europe reveal renewed strength and optimism, otherwise investors appear to be more likely to continue to hedge their portfolios with USD long bets.

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