The rally in U.S. equities and the improvement in risk appetite drove the U.S. dollar lower against all higher yielding currencies. Thanks to some extra efforts by the G20 and relaxation of mark to market accounting by the Financial Accounting Standards Board (FASB), investors have become more optimistic. However a big event risk lies ahead for the U.S. dollar and it remains to be seen whether the positive sentiment following the G20 and FASB can be sustained. The non-farm payrolls report is traditionally one of the most market moving pieces of data for the foreign exchange market and with the strong possibility of another sharp decline in jobs, it is too early to completely buy into the recovery story (How Could the Dollar React to Non-Farm Payrolls?).

This past week has been marked by recoveries in both the currency and equity markets thanks to better than expected U.S. economic data and reports of profitability from banks. Although the price action that we have seen thus far is still in line with a bear market rally, the move higher has been a breath of fresh air for many investors. For the time being, the downtrend in the EUR/USD has been broken. Even though the currency pair continued to edge higher, it remains to be seen whether the strength can continue. There are a lot of economic data due for release next week, but not before this weekend 3 big event risks – the G20 Meeting, OPEC Meeting and Bernanke’s first ever on-the-record television interview as Fed Chairman.