U.S. Dollar: Weakens Across The Board Ahead Of ISM Manufacturing, FOMC Minutes Euro: Capped By 20-Day SMA, Greece Raises Threat Of Euro-Area Breakup U.S. Dollar: Weakens Across The Board Ahead Of ISM Manufacturing, FOMC Minutes The greenback weakened against all of its major counterparts on Tuesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR ) tumbling to a low of 9,871, but we may see the reserve currency recoup the losses during the overnight trade as the economic docket dampens the prospects for additional monetary support. As the U.S. ISM Manufacturing report is expected to reinforce an improved outlook for future growth, the Federal Open Market Committee may continue to soften its dovish tone for monetary policy, and the meeting minutes could instill a bullish outlook for the greenback should the central bank talk down speculation for another large-scale asset purchase program. As Fed officials see economic activity gradually gathering pace in 2012, the more robust recovery certainly limits the central bank’s scope to conduct another round of quantitative easing, and the FOMC may endorse a wait-and-see approach throughout the first-half of 2012 as it aims to balance the risks for the region. As the central bank concludes its easing cycle, the shift in the policy outlook should prop up the USD, and we may see the reserve currency gain ground throughout 2012 as market participants see the Fed normalizing monetary policy over the medium-term. However, as the fundamental outlook for the world economy remains clouded with high uncertainty, Fed Chairman Ben Bernanke may keep the door to expand monetary policy further, and dovish comments from the central bank head is likely to dampen the appeal of the greenback as investors still see a risk for QE3. Euro: Capped By 20-Day SMA, Greece Raises Threat Of Euro-Area Breakup The Euro advanced to a high of 1.3058 following the better-than-expected employment report coming out of Germany, but the rebound in the single currency is likely to be short-lived as European policy makers struggle to contain the sovereign debt crisis. Indeed, the EU is rushing to nail out the details of the second bailout package for Greece, but there’s increased fears that there could be a euro-area breakup should the region fail to secure the EUR 130B rescue program. As the heightening risk for contagion drags on market sentiment, the bearish sentiment underlining the Euro should gather pace in 2012, and the exchange rate looks poised to weaken further over the near-term as the EUR/USD maintains the downward trend carried over from the previous year. As the euro-dollar fails to push back above the 20-Day SMA (1.3058), we should see the exchange rate come off during the North American trade, but the rise in trader sentiment may prop up the single currency as risk trends continue to dictate price action in the foreign exchange market.

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