The demand for liquidity and security has sent panicked investors to the US dollar.  However, with the world’s largest economy wading slowly into a recession and interest rate speculation pointing towards the lowest returns from US assets in history, how long can the greenback’s rally last?

One of the very few opportunities still out there is the congestion seen in the AUD/USD currency pair.

The past week was riddled with comments and data that suggests Euro Zone growth and interest rates will deteriorate faster than market participants had initially expected. This balance will be the primary concern for fundamental traders over the coming week, barring any unforeseen bank collapses or broad seizures in overnight lending.

The Japanese yen and US dollar remain weak while US stock market futures have surged as the US Treasury, Federal Reserve, and FDIC have announced unprecedented plans to recapitalize banks via preferred share purchases, while guaranteeing the senior debt of all FDIC-insured institutions.  Is this the answer the markets have been looking for?

Despite the approval of a massive $700 billion bailout plan and coordinated global rate cut, panic continues to dominate market sentiment. For the US dollar, the influence of this undesirable state will determine whether the currency can sustain its aggressive rally or a dramatic retracement brings it back to earth.

Data out of Japan has revealed a fundamental shift in capital flows that will continue to offer USD/JPY support, and will help offset the U.S. dollar selling pressure that has emerged in the wake of the Wall Street financial crisis.

The biggest concern for euro traders going forward are signs that the financial crisis has spread to the Euro Zone.

On the eve of the second Congressional vote for the US bailout plan, dollar traders have a singular focus on the stability of the financial markets. However, even after the crisis has been put to rest, it won’t take long before the realization that a recession and rate cuts are likely on the way sets in.

First and foremost, fundamental greenback traders' main concern in the days ahead will be the progress of the proposed bailout plan.

The long-term health of the credit and financial markets hangs in the balance.