The 1.50 level for the Euro against the dollar has been a key market target throughout the past three months and it is now in very close focus again on Tuesday with the dollar at fresh record lows.

Confidence in the US economy has remained very weak with a series of dismal data readings. This trend continued on Tuesday with consumer confidence weakening to a fresh four-year low while the expectations component dipped to the lowest level since 1991.

Recession fears are in full swing and once the history is written, there is a strong probability that the economy will be deemed as being in recession for the first quarter of 2008.

Fed Chairman Bernanke faces the semi-annual congressional testimony on Wednesday and he will struggle to deliver much in the way of good news. The Fed Chairman is under increasing pressure with growth, inflation and currency fears all escalating at the same time.

Bernanke’s testimony will be very important for the dollar on a near-term view, but the key to the dollar’s outlook is still the overall Euro-zone and wider global performance.

If Europe and Asia are able to demonstrate a de-coupling from US trends with a continuation of steady growth, then the dollar will be much more vulnerable to further near-term selling pressure.

Conversely, if the Euro-zone economy appears to be sliding towards recession, then the Euro will hit big trouble.

In this context, the stronger than expected German IFO index helped push the dollar sharply weaker on Tuesday.

The headline German data was positive, but the underlying data was less favourable. There are also high risks of divergence within the Euro-zone, with the Italian economy for example heading for recession while Spain and Franc are also very vulnerable to recession conditions. In this environment, betting on European out-performance still looks very dangerous.

Overall, the Euro is likely to run into fierce headwinds above the 1.50 level..