Story of the week

Lets see if the latest theme in FX has got the legs.

With the US enjoying an improvement in residential property sales, better than expected construction of single family homes, GDP outpacing expectations of -1% vs -1.5%, it seems now that the US economy is on the cusp of recovery ahead of the EZ and the UK.

And then, the Fed will raise rates, making dollar assets more attractive that Euro denominated ones as USD yields outperform.

That's why the dollar has seen good strength against the single currency Euro and Sterling Pound. The GBP of course, is still reeling from the BOE's decision to increase the printing of an additional GBP 50 bn for QE - to ease monetary conditions in the UK.

A few banks have been calling for a stronger dollar on the back of the US' recovery story, but none has predict this to happen so soon. In fact, 1.47 - 1.50 is a popular target for the EURUSD pair before analysts see a return to 1.30 by start - mid 2010.

Anyway, let's see how far will the current theme run.

Good support for the EURUSD and GBPUSD should come at 1.40 and 1.63 - the support line of the congestion trading in Jun-Jul 09.

I'd be buying from these levels as I see that there are still headwinds facing the US economy - declining commercial real estate values, rising unemployment and already high valuations of stocks.