The dollar got beaten up pretty bad over the past 2 weeks but inflation data coming from the European Union indicates that the ECB tightening cycle and the tightening bias of many other major countries might be over for now also. If that is the case, unless the Federal Reserve does something totally unexpected this Tuesday, the dollar may begin to base over the next week or two. What could Bernanke and crew do that is totally unexpected? Leave rates unchanged. In my view, that might be the best course of action for now but the markets would probably go nuts and make exacerbated moves. For the markets, the best thing right now is probably a 0.25% cut to meet expectations in the short-term.
This week, I will be looking for opportunities to go long the USD/CAD in anticipation that crude has peaked, long the AUD/CAD on long term economic outlook between the two economies or long/short the EUR/CAD on expected range trading.
