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The US dollar was easily the weakest of the majors during the past week of trading as fed fund futures shifted to price in a lower chance of rate increases in mid-2010 after as the Federal Reserve left rates at 0.25 percent and indicated that they would likely leave rates “extremely low” for an “extended period.” The other factor to consider was the increase in risk appetite, as evidenced by the concurrent weakness in the Japanese yen (the other “safe haven” currency) and the 3 percent increase in the S&P 500 over the course of the week.

The continued correlation between the greenback and risk aversion is a notable one, and will be quite useful in the coming week of trade as scheduled event risk will be remarkably low and contained to Friday. First, the US trade balance may show a wider deficit for the month of September as it is expected to reach -$31.8 billion from -$30.7 billion. This is a change from last month, when the deficit narrowed on rising exports and falling oil imports, as government stimulus measures around the world along with the weak US dollar helped to stoke foreign demand. Later in the morning, the preliminary reading of the University of Michigan’s consumer confidence index is forecasted to improve slightly in November by rising to 71.0 from 70.6. That said, it’ll be interesting to see if the index can hold at such robust levels after the latest US labor market report showed that the unemployment situation continues to worsen. A major issue we want to point out with this report is that the official time of release is 10:00 ET, but it typically hits the wires at 9:55 ET, which can exacerbate any surprise factor from the actual results.

All told, risk trends will likely be the greater factor to keep in mind, and from a technical perspective, the confluence of a falling trendline drawn from the July highs and the 50 SMA at 76.50 serves as a solid “line in the sand” for the US dollar index. Until we see a break above there, the currency’s trend remains bearish.