In the past few days we have seen a bearish scenario develop slowly in the EUR/USD and GBP/USD pairs. The USD rallied mostly on Wednesday as both French and Germany’s economy ministry agreed that an ongoing rise in the euro could harm exports. French Finance Minister Thierry Breton even went further by saying that “everything” must be done to prevent the Euro from strengthening too much against the dollar which may include an intervention by European central bank (ECB) to move in to the market and weaken the single currency.

The Euro feel sharply afterward and the consolidation started around that time. The dollar’s gains were also boosted by news of a pick up in US inflation levels which led to speculation that US might not paused the rate hiking cycle as previously believed by investors.

Today’s activity appeared to be driven more by positioning rather than by orders with the dollar giving up some of yesterday’s gains. US Treasury Secretary John Snow’s comments that the US government remains ‘extremely dissatisfied’ at China’s slow pace of currency reform didn’t help the USD either. And the US Data that come out today so far seemed to have remained pretty low-key with a minor blow in weekly jobless claims numbers unexpectedly rising to 367k versus expectation of 319k. Federal Reserve chief Bernanke said that he expects an “orderly, moderate” decline in housing activity without mentioning inflation. The housing market has been a top economic performer in the past years which created a rapid appreciation in house prices empowered consumer spending and helped the economy move solidly ahead, but this might be about to change as well.

The GBP, meanwhile, also got a boost after key retail sales numbers showed that consumer spending in the country picked up in April — a factor which will advance expectations of a Bank of England rate hike before year end. Although the monthly gain was in line with expectations, the annual increase has above the forecasts of a 2.7 pct increase.

COMMENTARY
Overall after a short period of corrections and range trading, I think that the USD should resume its bearish trend in the coming weeks. What do you guys think? Do you think we have reached the bottom yet and will see the USD strengthen or is there still more downside to come?