S Dollar Starts Slide in Europe; Euro, Franc Surge as US Trading Approaches -Christopher Vecchio, Currency Analyst at DailyFX

"The Dow Jones FXCM Dollar Index

is falling fast today, for no real rhyme or reason, but rather, what is tentatively being viewed as month-end flows and profit taking. The US Dollar, expressed by the USDOLLAR Index, was up +4.07% on the month before today's open, quite a strong move for any currency, particularly one that remains hampered by an ultra-dovish central bank policy regime. Nevertheless, after an exceptionally volatile across the entire FX landscape, it wouldn't be entirely surprising to see a major dislocation over the next several days as profit is taken. Key questions linger in traders' minds: will the Fed taper QE3 beginning in June, September, or December; will the ECB implement negative rates to try and spur lending; will the BoJ be able to prevent turmoil in JGBs and keep the Nikkei chugging along, at the Yen's expense; and are the Aussie and Kiwi selloffs warranted given the increasingly excessive negativity on China? While we await these answers over the next several weeks and months, the one that is most likely to be answered in the immediate future is whether or not the ECB will implement negative rates. The past several days, several ECB policymakers have been making the rounds touting their respective views on monetary policy, and just like the Fed's collective view on tapering QE3, there is no consensus on implementing negative rates by the ECB. This is important as there is an ECB policy meeting next Thursday, at which point this issue will be looked at directly. Given the negative impact speculation has had on the Euro, any such signs that negative rates are unlikely could provoke gains in the Euro, especially against the US Dollar."