The US Dollar stands at a potentially significant juncture. With the end of summer fast approaching we expect price volatility could pick up substantially through the medium-term. Whether sharper price moves will bring US Dollar strength or weakness may very well depend on the events in the week ahead.

Today the US Dollar finished the week nearly unchanged against major counterparts, rallying notably at the outset but giving back gains into Friday’s close. Indecisive financial market sentiment meant that the US S&P 500 saw similarly choppy moves, and tight price trading ranges across key asset classes should make next week especially significant as far as market direction is concerned. Traders these days look for upcoming US Non farm Payrolls data and related economic releases to drive more decisive moves in the US Dollar. Strong surprises in domestic labor data could very well decide trends for the Greenback and S&P 500 through the subsequent month of trading.

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A steady trend of disappointing US economic data led Fed Chairman Ben Bernanke to openly discuss expanding monetary policy stimulus, and the coming week of fundamental releases may prove critical in setting market expectations for the FOMC’s subsequent policy moves. Forex traders forced noteworthy US Dollar losses on Bernanke’s relatively dour outlook for growth and hints that the Fed could enact further Quantitative Easing. Given that the Fed has a mandate to control price inflation and maximize employment, continued disappointments in Nonfarm Payrolls data could force the central bank into action. Friday’s NFPs release could drive volatility for said reason, and it will be important to watch the usual string of early-month economic data releases leading up to the result.

Other calendar highlights will include Conference Board Consumer Confidence results, Minutes from the most recent FOMC meeting, ADP Employment Change data, and later-week New and Pending Home Sales reports. Each one of these releases could potentially force sharp swings in the US currency, and it will be important to monitor general financial market risk sentiment trends leading into Friday’s event risk. The S&P 500 remains at somewhat of a standstill after bouncing respectably off of its monthly lows near the 1040 mark. Sharp downward momentum since April suggests risks remain to the downside, and we accordingly call for a break of significant support levels. Yet recent price choppiness emphasizes that markets do not move in straight lines, and short-term moves are far more difficult to predict.