The dollar will likely continue probing record lows against the euro next week, with housing data seen supporting views of further deterioration in the US economic outlook and more Federal Reserve interest rate cuts.
But a growing chorus of protest from the euro zone about the soaring single currency's negative impact on business could give the dollar some breathing space and provide scope for a short-term reversal, strategists said, even as the outlook for euro zone rates is stable for now.
"The dollar still looks pretty weak. Short-term we might see some turnaround in the trend, but I don't think we are going to see a significant pick-up in the dollar unless we see the spread situation alter dramatically," said Shaun Osborne, senior currency strategist at TD Securities in Toronto.
"With a lot of expectation that we are going to see the Fed perhaps reduce interest rates again in the not too distant future, there is no indication that the spread situation will change dramatically."
The euro surged to a lifetime peak of $1.4966 on Friday, stopping short of the key $1.50 mark as European Central Bank policy-makers said Europe's growth outlook was deteriorating and warned of the risks attached to "brutal" currency movements.
European exporters are also becoming increasingly concerned by currency trends, with Airbus stating that the euro/dollar exchange rate near $1.50 is causing problems for its business model. Strategists said the pick-up in protests against the surging euro had raised the chances of a stronger response from the policy-making community.
"Investors need to be aware of risks ahead and we can expect warnings against one-way bets against the dollar up ahead," UBS strategists wrote in a research note. In addition to watching the growing discontent over the euro, investors will be occupied with a raft of US economic data, with existing-home and new-home sales reports key.
"The Fed says 'we're on hold,' but the market says, 'no you're not'," said Ron Simpson, director of currency research at Action Economics in Tampa Florida. "Based on the data we may see some short covering.
October existing-home sales, expected at 5 million at an annualised rate, and October new-home sales, expected at 750,000 annualized, will be released on Wednesday and Thursday.
The report on October durable goods orders is also slated for Wednesday. Economists polled by Reuters expect no change from the prior period. The Federal Reserve's Beige Book of anecdotal economic conditions is also due on Wednesday.
The second reading of third-quarter gross domestic product will be released on Thursday, though investors may not focus too much on that number given it is old data.
Instead, Friday reports on the core personal consumption expenditure price index for October, forecast to rise 0.2 percent, and personal spending for the same month will be a focus, Simpson said.