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EUR/USD reached 1.4900 on expectations that the FED will cut the rates by 50 bsp on next week’s announcement. This week we see several inflationary releases that will give us a sneak peak into next week’s meeting. We also get Beige Book so if you examine this week’s releases you’ll be pretty well set for the following week. But remember that the last time we were near these prices, Trichet began to speak about how having EUR/USD this high could impact Euro Zone exports and harm the economy. Price Action is high and could go higher, the important question is how much higher and some analysis keeps us thinking there is much more space to go lower than higher, so be carful with the long positions too.

Fundamentals remain our most important indicator of where the currencies are heading, on Tuesday we get the ZEW surveys, which are expected a bit weak. Later that day we get PPI and Retail Sales; both these releases will have a negative effect on the USD, as they are expected lower than previous months they are signaling deceleration and reminding of the possibility of a recession during 2008. Wednesday will bring us CPI, TICS and the Beige Book. Beige Book will be the most important release this day due to the upcoming rate decision and the high importance of rate differential. Thursday will also be important due to E-Z Trade Balance, Housing releases and the Philly Fed report.

We’re getting near to historical heights so technical analysis will not work very much this week. This happens because indicators will tend to show a overbought and bearish trends but we need to give them some time to get used to these levels before they can be used to predict future movements. Watch out for strong resistances as we are waiting for anything to trigger the USD rally to the south.