3SOF

The value of the U.S. dollar on the international market is continuing to plummet, despite record growth in the US economy.
Since October, the dollar has fallen 4 percent against both the euro and the Japanese yen. And this week, the dollar hit the lowest it has been against the euro since March 2005.

With the Dow setting records every week and America creating more jobs than it can fill, why is the dollar falling? There are several reasons.

Approximately 70 percent of all foreign-exchange currency is currently held in U.S. dollars. The U.S. then sells Treasury debt into that foreign exchange market.

This is a bit complicated, but here's what that means. Each U.S. bill is a receipt for Treasury debt. Once accepted as "money" it has value to its bearer. But, it is debt to its issuer. The system relies on the global flow of U.S. dollars in and out of foreign currency reserves. A smaller foreign exchange holding in U.S. dollars means a smaller pool out of which to sell U.S. debt.

This sets up a financial peril that is little understood by most Americans. It sets up a double threat to the dollar. It not only shrinks the dollar's value, but also raises both the trade deficit and the budget deficit. Now stay with me, here. This may be some of the most important information you will need to try and force Congress to do something – and also to take action to defend your own personal financial future.

It has become apparent that there is a new strategy to destroy America. It is a new kind of warfare designed to destroy the value of American currency via a carefully coordinated attack against our dollar by a coalition of our enemies. And, based on the rapid shrinking of the dollar's worth, despite an economic boom, it appears to be working.

Certain countries have begun quietly divesting themselves of U.S. foreign exchange holdings, converting them to euros. In 2004, the Switzerland-based Bank for International Settlement reported that the U.S. dollar-denominated deposits of OPEC countries fell from 75 percent of their total deposits in the third quarter of 2001 to 61.5 percent by the end of 2003.

In the same period, the share of euro-denominated deposits of OPEC countries rose from 12 percent to 20 percent. OPEC member euro-denominated deposits reached 44 billion in June 2004, nearly double the 23.4 billion euros these countries held in the third quarter of 2001.

In the same period of time, the dollar holdings of the OPEC member countries decreased from $145.3 billion to $132.1 billion. In 2005, China negotiated major oil and natural gas rights from Iran.

For years, North Korea's Kim Jong-il has been flooding the global economy with so-called "supernotes" – counterfeit U.S. $100 bills so good even Secret Service agents can't tell the difference without conducting sophisticated tests.

The 2005 arrests of major Asian crime figures in several U.S. cities led investigators straight to Pyongyang – and from there to Beijing. Experts now believe that a significant percentage of U.S. $100 bills now in circulation are counterfeit.

The strategy is to flood the market with counterfeit dollars to deflate its value. Then to convert U.S. holdings to euros, thus pushing the dollar into a deflationary freefall.

In January 2006, China announced an intention to reduce 75 percent of its foreign exchange reserves currently held in U.S. dollars.

Since China is the world's second-largest holder of U.S. dollar-denominated foreign-exchange reserves, it has the power to create a catastrophe. At the same time, Venezuela and Iran are now demanding that all payments for oil shipments be paid for in euros – not dollars.

In addition, both nations are planning regional central banking schemes designed to hold all foreign exchange holdings of participating countries in euros instead of dollars. This explains why enemy operators, spearheaded by members of the Saudi royal family, have flooded hundreds of millions of dollars into Venezuelan held bearer-bonds that are used to buy as many banks as possible throughout the Caribbean and South American areas.

All these factors cannot be coincidence. They reveal a concerted, well-coordinated strategy to destroy America through economics.

I believe oil is being used in this same overall strategy against America. Last October, OPEC agreed to reduce production to keep oil prices up near $60 per barrel. The price was suggested by Hugo Chavez after consultation with his friends in Tehran and Moscow and accepted by OPEC.

With that one brilliant maneuver, Chavez cornered the global oil market. Venezuela has vast deposits of heavy oil in the Orinoco, but heavy oil is expensive to extract and refine at free-market prices. However, at $60 per barrel, the Orinoco reserves give Venezuela the largest proven oil reserves in the world.

Not just larger than the vast reserves of Iran or Saudi Arabia, it is larger than both of them put together. In fact, it is bigger than all the proven oil reserves in the Middle East combined. Venezuela's deposits alone could extend the oil age for another 100 years.

Hugo Chavez is raking in some $200 million a day in oil sales, most of it from the United States. If Chavez demands payment in euros, it will throw the whole U.S. economy into a crisis.

Amazingly, Hugo Chavez has now become the go-to guy for all of OPEC. He's held audience with every oil sheik and dictator in the Middle East, including our "friends" the Saudis and Kuwaitis. With the recent re-election of Chavez, the U.S. is ringed by five of the most virulently anti-American leftist regimes in Latin America.

does this mean war with venezuela us ib  the horizon, i remember reading an article about one of the main reasons we went to war in iraq is cause saddam wanted to start taking euros as currency and bush was doing it to protect the value of the U.S , in time the euro seems like it will rule with a wide margin over U.S currency

Declining dollars is both good and bad.......


The U.S. dollar fell to its lowest point ever against the euro Thursday as traders bet the Federal Reserve will soon cut the overnight bank loan rate. U.S. Treasury Secretary Henry Paulson also warned Wednesday that volatility in financial markets won't relent any time soon. The news has Wall Street worried, but what does a depreciating dollar mean for U.S. consumers, businesses and the economy? Here are some questions and answers.

How does the dollar's fall against the euro and the British pound affect consumers?

For one, it makes it more expensive for Americans to travel and shop in Europe, said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Conn. At today's exchange rates, it takes $1.39 to buy one euro, up from $1.17 in November 2005. That means a 300-euro room at a Paris hotel has jumped to about $417 (or more, depending on where you changed your dollars into euros) from $351 back then. "Anyone who goes to London or Paris right now is going to feel like they're being gouged and regret booking the trip," Gilmore said.

Conversely, the depreciating dollar encourages travel to the U.S. by Europeans who gleefully find their money buys them cheaper accommodations and everything seems to be on sale.

Is the dollar's decline bad for the economy?

Not necessarily. When the dollar loses value, U.S. manufacturers benefit as foreign trading partners buy up more of their goods. Construction and agricultural equipment maker Deere & Co. said last month that its third-quarter profit jumped 23 percent on strong international sales. Heavy equipment maker Caterpillar Inc. boosted its exports from approximately $9 billion in 2005 to $10.6 billion in 2006. More than half of Caterpillar's products made in the United States are exported.

That's why many currency traders think the Bush Administration is privately pleased by the dollar's decline, knowing that it turbocharges export sales. But as previous administrations discovered, you have to be careful what you ask for. Remember the backlash in the 1980s after the Japanese used the soaring yen to buy up everything from Rockefeller Center to the Pebble Beach golf course? That could be a prelude for another crisis of confidence if overseas buyers with strong currencies pick up the pace of their purchase of prime real estate and iconic major U.S. corporations.

In addition, Americans almost certainly will end up paying more for imported goods such as Mercedes and BMWs made in Germany, which is one of the 13 nations that use the euro as their currency. That reduces U.S. consumer spending power and also could trigger higher inflation.

Why is foreign investment in the dollar important?

Foreign buyers have to first obtain dollars when they want to purchase assets like U.S. Treasury securities and stocks and bonds, and their money supports growth in those markets.

Much of foreign investment in the dollar originates from overseas central banks in the form of U.S. Treasury securities, which are safer investments than stocks and bonds. The U.S. Treasury in turn uses those investments to finance the federal deficit. If central banks and other foreign investors shy away from U.S. Treasury securities, the government will have to pay higher and higher rates at auctions to find buyers for its bills, notes and bonds. And that would eventually push up borrowing costs for all Americans.

Currency traders anxiously await the Fed's Tuesday meeting for its decision on interest rates, which could further weaken the dollar. The expected quarter-point cut to 5 percent would still leave overnight rates above the European Central Bank's 4 percent peg. But by narrowing the gap, it could cut into traders' profits.

Currency traders make money by financing purchases of higher-yielding currencies like the dollar with lower-yielding currencies. They earn money on the assets backed by the higher U.S. interest rate, pay back the loan on the lower-yielding currency, and then pocket the difference.

Will this affect my paycheck?

Yes, in the sense that a weaker dollar can't stretch as far to buy foreign-made products.

"It reduces purchasing power by raising the cost of imported goods, and in some cases there may not be perfect substitutes, so consumers might end up paying higher prices," Gilmore said.

In the long-term, workers could demand higher pay to compensate for that diminished purchasing power, straining businesses' resources, he said.

Falling purchasing power and rising prices force the Fed to balance its two major responsibilities: trying to maintain stable prices while promoting growth. Wall Street is hoping they focus on the latter, at least for now, crossing its fingers for a rate cut to jump-start the economy.





 
 

The Other Side of the Dollar Slide.......


Warm Pizza and Hot Rupees

I saw a snippet of an ad campaign yesterday where Yankee Stadium turns into pepperoni pizza, hot dog blimps fly by, and buildings are topped with whipped cream. New York City's tourism organization aiming to attract 50 million tourists annually launched a $30 million global marketing push.

Not-so-ironically the agency hired is British and partly owned by a French Holding company. Perhaps it offers a clue to what Europeans and likely many others think about buying space in the U.S. I'd guess they'll very likely be successful, and I'd imagine plenty of trips to the U.S. are being planned with big smiles based on what the currency exchange window is telling them pre-flight. I would keep this in mind for U.S. leisure industries, hotels, and online ticketing solutions because business should boom when most of us in the U.S. are tightening our belts, foreigners are fastening their seat belts. And they'll buy a lot of stuff when they arrive. There are some jewels inside a sector that a lot of investors are writing off based on weakness in the U.S. consumer. Look for those sending invoices outside the U.S.

In a perhaps even less crowded trade I'd note the same day as this campaign was launched, Infosys (INFY) reminded us of the other side of the dollar slide. Many multi-nationals are pointed to by almost every analyst now as benefiting from the weak dollar, often extending to predictions for the market as a whole now that foreign sales account for so much of the "U.S." companies' revenues. I want to reverse that logic and find out who is getting hurt. At the top of that list, as a good example, is a company that I owned for many years from the long side, INFY, so if anything I'd be biased by its remarkable run. I am not. I still believe the company is among the best in the world. However, its best customer, the U.S., is paying with dollars worth less and less against the Indian rupee - an exchange rate that has changed by 16% in the last 12 months alone.

I buzzed in July that Infosys, the outsourcer, was in the process of outsourcing itself. It was hiring workers in Guadalajara, Mexico because of fierce wage pressures that became concerning. Being a low cost provider is a great sales pitch until the salesman is late because He's asking for a raise at the home office. The pressure will likely grow, as well it should, since the standards of living will marvelously march higher, taking desires along with them. The added headwind for these outsourcers is that they are selling into the U.S. and getting paid with dollars worth a lot less while pricing pressure and competition heats up – a wicked brew. More than two-thirds of Infosys' revenues comes from North America.

I think there may be a terrific opportunity nearby to balance extreme optimism (my own included) about technology and long positions, with carefully selected paired trades by shorting technology companies selling into the U.S. next to longs selling from the U.S. Infosys, until proven otherwise, is a horse you may not want to bet against, but some of its cousins have peaked my curiosity. INFY's numbers this week offer several clues from my perch. The shares are down (5%) year-to-date against an 18% rally in the S&P Technology Sector, offering a more reliable clue.

More Dollar Doom.......  >:D

IF THE DOLLAR WERE AN ANIMAL, IT MIGHT BE A LAMB...a fluffy, adorable little lamb...surrounded by a pack of wolves. The dollar is simply no match for the vicious influences that threaten to devour it — influences like a Federal Reserve that promises to combat every financial crisis with ample doses of additional credit.

Part of a recent show with an Orlando, Florida radio station focused on the immense losses announced by Merrill Lynch and Citigroup, and the departures of the top managers of both firms. Merrill wrote down over $8 billion of bad financial paper, leading to a quarterly loss of nearly $3 billion. And Citigroup has massive losses that may be in the vicinity of $13 billion or more. These are mind-boggling numbers, yet my view is that we are just seeing the tip of a few icebergs.

It seems that over the past few years, much of the financial industry loaded up on bad debt instruments. I will not even dignify this rotten paper by calling it some sort of "investment," because there was and is essentially nothing to back it up. There are entire portfolios filled with subprime loans, initiated via "no documentation" loans against over-appraised buildings on the far side of the railroad tracks. In other words, these are worthless loans that will never see a dime of repayment. In many cases, these loans are evidence of economic crimes.

When the banks and investment houses acquired these bad books of business, the risk models that they used were pure guesswork. In the real world, engineering has made complicated structures like bridges and skyscrapers safer over time. But the so-called modern "financial engineering" has done nothing of the sort in the economic world. It all goes to show that just because the human mind can come up with an idea, it does not mean that people should act on it, let alone back it with their funds.

At this point, it is all but impossible to value much of what the financial houses have on their books. So the write-downs are just beginning. I believe that there are greater losses lurking in the shadows for both Merrill and Citigroup, and for many other banks and investment houses around the world. Several well-known banks in Germany, for example, are on the brink of disastrous write-downs. It is just a matter of time before these losses become public.

While on the air in Orlando, the host cracked a few jokes about how Merrill Lynch's Stan O'Neal is receiving a $160 million severance package for departing in the wake of his troubled tenure. This huge sum is surely far more than he deserves. After all, Mr. O'Neal took some big paydays over the past few years when things looked good at Merrill and he was firing 26,000 people to juice up the bottom line. So why does he get the big bucks again, on the way out the door, now that his ship has hit the rocks? Good question.

Then the host said what he anticipates for the U.S. economy and how the individual investor should protect himself from the coming turmoil. His, reply was that he believes that the U.S. dollar is in a long state of decline. This is going to be an ongoing tragedy because so many people in the U.S. and around the world will be caught in the riptide as the value of the dollar washes away.

Do you remember when you would walk into a store and the owner might have the first dollar he ever earned in a frame, hanging on the wall behind the counter? People were proud of their money and trusted it as a long-term store of value. Not any more. Yet most people in the U.S. know only the dollar and understand only the dollar and their savings and investments are almost entirely in the dollar. So what happens when the value of the dollar just disintegrates? It is painful to think of the hardship that is coming down the road.

No one really knows how the decline of the dollar will play out. There is no modern precedent for what is about to occur as the world's reserve currency evaporates in value.

Literally billions of people rely upon the U.S. dollar as the economic rock that holds up the foundations of the world economy. Yet that rock is turning into loose sand. How does one save, let alone invest, in a world where the value of the dollar is in irreversible decline? A declining dollar is the same as the destruction of capital.

My advice is to load up on gold and other precious metals and mining shares in companies that control real ore in the ground. While you are at it, also go for the companies that own or control real energy reserves, such as oil and gas, coal, uranium and renewable energy systems.

As if on cue, last month, the British newspaper The Independent launched a story with these words:

"A new phase in the credit crunch, one of '$1 trillion losses,' seems to be dawning. The crisis at Citigroup and renewed doubts about some of the world's leading banks disquieted stock markets on both sides of the Atlantic recently, with the fractious mood set to continue."

So there are a trillion dollars of losses yet to be booked...and a company the size of Citigroup does not have the capital to manage itself as an ongoing entity...and the prices for gold and oil are skyrocketing as the value of the dollar declines.

My advice is to protect yourselves, dear readers. There are wolves at the door.

The dollar's fall has some other industries on the rise. Gold and oil have been hitting all-time highs lately and now may be the time that real change begins to occur.

Ultimately, the only story that counts is your own. Whether you buy the story of a soaring or a souring stock, your own research is more important than collective opinions. But these collective opinions make an individual's due diligence much easier.   ;)

Big Firms Offer
A Money Haven
As Dollar Skids
By BRETT ARENDS
March 1, 2008; Page B1

Millions of Americans are watching the collapse in the dollar and wondering what, if anything, they should do about it -- apart from canceling this summer's trip to Europe.

Should you move your money into euros? Gold? Soybeans?

WEAK-DOLLAR BETS

Reasons to like "large-cap growth stocks" in a weak-dollar world:
• They tend to have high and rising overseas earnings.
• Falling dollar makes those earnings more valuable.
• Falling dollar also makes shares more attractive to foreign investors.Try Wall Street -- and particularly the shares in big-name American growth companies such as Intel Corp., Procter & Gamble Co. and Coca-Cola Co.

For U.S. investors, they're an antidollar play. And, it so happens, many of these shares are having a sale right now. For example, chip company Intel is trading at just 14 times forward earnings, about as cheap as it has been in a long time.

We think of them as "American," but of course the biggest and most dynamic U.S.-based companies are really international.

Intel gets 81% of its revenue from outside the Americas, according to its most recent accounts. For Hewlett-Packard Co. the figure was recently 69%, and for Caterpillar Inc. it was 60%. Last quarter, International Business Machines Corp. generated $11.7 billion in revenue from across the Americas. From Asia, Europe, Africa and the Middle East: $16.3 billion.

Google Inc. is nearly half and half these days. So is Cisco Systems Inc. and Johnson & Johnson. For big brand-name companies, from McDonald's Corp. to Apple Inc., overseas markets are of huge and growing importance. And those sales are growing much faster than those in the U.S., so they make up a bigger share of sales each year.

When the dollar falls, investors in multinational companies get two benefits. First, any products made in the U.S. for export become more competitive against those made elsewhere. It's good for Boeing Co., bad for the Airbus unit of European Aeronautic Defence & Space Co. And second, it means foreign sales and earnings are worth more in dollars.

Meanwhile, the falling dollar has another, underreported and underappreciated effect: It makes U.S. shares much cheaper for foreign investors. This should attract more foreign buyers in due course -- pushing share prices back up.

For example, in nominal terms Wall Street -- as measured by the Standard & Poor's 500-stock index -- has only fallen 15% from the high reached last fall.

But to an investor in euros, the market has now fallen 23% since June -- and nearly 50% from its peak in 2000.

In general, the biggest companies and those with the higher growth profiles tend to have higher overseas exposure. These same companies also tend to be safer in a turbulent market, a big plus these days.

The easiest way to play them is through a simple, low-cost exchange-traded fund. Index-fund giant Vanguard Group recently introduced a Mega Cap 300 Growth ETF (trading symbol MGK). It holds stocks with a median market value of $46 billion. A similar ETF, with a longer trading history, is the Dow Jones Wilshire Large Cap Growth SPDR (ELG).

Get used to high prices.......

What's more, the Federal Reserve is relatively powerless to deal with many of these pressures.
Get used to high prices
The Fed has a mandate to keep inflation in check. But global forces and worries about the U.S. economy will keep prices high for the foreseeable future.
Full Text:
Get used to high prices
The Fed has a mandate to keep inflation in check. But global forces and worries about the U.S. economy will keep prices high for the foreseeable future.
By Chris Isidore, CNNMoney.com senior writer
June 12, 2008: 3:30 PM EDT
NEW YORK (CNNMoney.com) -- For those struggling to deal with record gasoline and soaring food prices, there's bad news and more bad news.
Economists think inflation is here to stay. And it's likely to get worse.

A weak dollar and growing economies in emerging markets have conspired to send commodity prices higher. Those factors are unlikely to change anytime soon.

"We're more open to influences from the rest of the world than we were before," said Jay Bryson, international economist with Wachovia. "That does make it more challenging to keep inflation under control."

What's more, the Federal Reserve is relatively powerless to deal with many of these pressures.

"The Fed can't control prices of commodities determined in a global market," said Rich Yamarone, director of economic research at Argus Research. "If it could, it would have done so already."

On Friday, the Labor Department will report its latest reading on inflation. According to estimates from Briefing.com, economists expect that the Consumer Price Index (CPI) rose 0.5% in May. That would be the biggest jump in a year. It also would likely mean that prices would be up more than 4% on a year-over-year basis.

The so-called core CPI, which excludes food and energy, is also expected to pick up speed. Forecasts are for a 0.2% jump, following a 0.1% gain in April.

And the June CPI numbers could wind up showing even bigger gains. So far this month, retail gasoline prices have hit a series of record highs and topped $4 a gallon for the first time.

Futures prices for oil and key commodities such as corn have also climbed to record levels. Corn futures shot above $7 a bushel for the first time Wednesday as flooding in the Midwest trimmed forecasts for this year's harvest.

But it's not just oil and food that are leading to higher prices for consumers. A separate inflation reading reported Thursday showed the price of imports, excluding oil, were up 6.6% in the 12 months ending in May. That's the highest increase in that measure in 20 years.

A weak dollar has overseas exporters demanding more greenbacks for their goods.

Rapid growth of manufacturing and services overseas has workers in developing economies such as China and India winning healthy wage increases. That also raises prices of those countries' exports.

In addition, those countries have seen robust gains in auto sales, which should lead to even more demand for oil in the years ahead.

Another factor lifting prices is a weaker dollar. The dollar has lost about 13% of its value compared to the euro since August. This means it takes more dollars to bid for commodities against traders in Europe and Asia.

The Fed's hands are tied
Much of the weakness in the dollar has been laid at the feet of the Fed, which has slashed interest rates seven times since September. At the same time, central banks elsewhere have made only small cuts to their interest rates.

And even with the Fed now signaling it is likely to keep rates steady in the near term, the dollar has continued to slide as the head of the European Central Bank suggested that the ECB would raise rates soon. Those comments sent oil soaring to a record close of $138.54 on Friday.

Oil analyst Peter Beutel, president of Cameron Hanover, said he believes 90% of the rise in oil prices since last August was due to the Fed's rate cuts and the expectations of rate hikes in Europe.

"If the dollar was where it was last August, there's a very good chance we might never have seen $100 a barrel oil, maybe not even $90," he said.

The Fed, which has a mandate to keep prices in check, has been voicing greater concern about inflation in recent weeks. Most recently, Fed Chairman Ben Bernanke said Monday there is an increased risk of high food and energy bleeding through to the price of other goods and services.

But most economists don't expect the Fed to raise interest rates -- its traditional way of combating inflation -- until the end of the year at the earliest.

Generally, higher rates cool U.S. economic activity and cut demand for goods and services, which in turn leads to lower prices.

However, the Fed also has a mandate to foster sustainable economic growth. And with the unemployment rate registering its biggest spike in 22 years in May, the Fed is not likely to push rates higher soon, economists said.

There's also the fact that the Fed typically prefers to stay on the sidelines in the middle of a presidential election.

"I think you'll see the Fed talk up a storm about the caustic nature of inflation, because that's all they can do now, at least until the election is over," said Yamarone.

To that end, investors are currently pricing only a 20% chance of a hike at the Fed's next meeting, a two-day session that concludes on June 25.

Others say the Fed also has to be worried about the reaction of financial markets if it made a sharp and sudden move to raise rates.

"The Fed is painted into a corner," said Barry Ritholtz, CEO and director of equity research for Fusion IQ. "They don't dare raise rates. The credit crisis is not even remotely behind us. So the Fed has limited options and there's only so much they can do."

With that in mind, Wachovia's Bryson thinks that inflation will peak in the third quarter of the year with an annual rate of 4.3%, up from the current reading of 3.9%. Yamarone sees consumer prices getting as high as 5% annually.

But Bryson said even if the rate of price increases retreat late in the year, the new floor for prices will be a lot higher than they used to be.

"Corn and oil are not going to go back to where they were a few years ago," he said.

Dollar pain hits close to home
When you pay more for oil and other imported goods, that's the fault of the weakened greenback.
By David Ellis, CNNMoney.com staff writer
Last Updated: June 27, 2008: 3:43 PM EDT



NEW YORK (CNNMoney.com) -- The weakened dollar isn't just wreaking havoc for Americans traveling overseas - it is hitting consumers right at home.

From soaring prices at the pump to rising food costs, the impact of the declining greenback has been far reaching.

"It touches on so many things when you think about it," said Dustin Reid, senior currency analyst at ABN AMRO in Chicago.

On Friday, the dollar eased against the euro, as the 15-nation currency bought $1.5790, up from $1.5760 late Thursday. The dollar also fell against the Japanese yen but gained against the British pound.

Oil and gas Many analysts have blamed soaring oil prices, at least in part, on the declining dollar.

Oil, like many other commodities such as wheat and gold, is priced in dollars. So if the greenback weakens, many investors buy oil at its current price to hedge against inflation. The drop in the value of the dollar also forces producers and traders to demand more in dollars for their oil in order to reflect its current value.

That increase, however, is not just reflected at the pump. Companies facing rising fuel and ultimately transportation costs often times are forced to pass those increases onto consumers.

Just this week, Dow Chemical Co (DOW, Fortune 500). announced plans to raise the price of its goods by as much as 25% as a result of rising energy costs.

Imports But consumers' pain doesn't end there. They are also getting squeezed by paying more for imported goods.

Even if you don't indulge in Russian caviar or wear a tailored European suit, many everyday items, as well as the materials used to produce American products, come from overseas.

And when the dollar's value deteriorates, Americans find that their purchasing power doesn't go as far for foreign goods.

Exports One silver lining amid all the dollar doom recently has been the boom in U.S. exports.

While the nation's trade gap widened in April, exports have been on the rise in recent months as a weaker dollar makes domestically produced goods more attractive to foreign buyers.

That has also helped lift sales for U.S. manufacturers that export their goods. Shoemaker Nike Inc. (NKE, Fortune 500), which posted a 12% jump in quarterly profit earlier this week, was helped in large part by international sales.

"The fact that the dollar is weak is keeping this country out of a recession and keeping some jobs on the board," said ABN AMRO's Reid.

How we got here To be certain, the dollar has been falling against some of the world's biggest currencies for the better part of this decade.

But it wasn't until the credit crunch erupted that the greenback's decline picked up speed. As of the end of May, the U.S. Dollar Index, which measures the greenback's performance against six of its biggest trading partners, has fallen just over 11%.

Much of its decline, however, can be blamed on the Federal Reserve. When the Fed cuts rates, it puts pressure on the dollar since it makes dollar-denominated investments less attractive to outside investors.

And, since September, the central bank has cut short-term interest rates seven times to help ease the credit crunch and keep the economy from tipping into a recession.

Hope for a rescue? Currency experts such as Kevin Chau, a foreign exchange analyst at IDEAGlobal in New York, are betting that the dollar won't stage a recovery. They see higher oil and food prices continuing to weigh on U.S. consumer confidence, while the outlook for the nation's economy grows increasingly bleaker.

Certainly an increase in interest rates by the Federal Reserve would help prop up the dollar, but most market observers aren't expecting that to happen until at least the fall - and possibly not until next year..

Were the dollar's condition to severely worsen, both the Treasury Department and the Federal Reserve could orchestrate a rescue by tightening the money supply, including repurchasing government bonds. Or they could seek help from other central banks, who would buy dollar-based assets.

In the meantime, currency experts anticipate that top officials - including Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke - will rely on the dollar remedy of choice: publicly stating they support a strong dollar policy.

Dollar down, but not out, as second half begins
Gradual strengthening expected, but some are bracing for more bumps...

TOKYO (MarketWatch) -- At the beginning of the second half of 2008, the dollar is mostly down but it remains above its lows against major rivals.

Strategists are mostly in agreement that the currency's direction from now will be largely determined by the Federal Reserve's interest-rate policy. The jury's still out on exactly what that policy will be.

While most expect the dollar to end the year higher, the road there could be bumpy and full of holes, depending on what route the central bank takes.

The Fed's easing cycle since September was a significant source of fundamental pressure on the dollar, as lower interest rates eroded the returns on dollar-denominated assets. As the central bank cut interest rates to support the economy, the dollar spiraled downward, too.

The first half was not kind to dollar bulls. The euro gained more than 7% against its U.S. counterpart, which shed about 5% against Japan's currency. The dollar index (DXY:US Dollar, which tracks the greenback against a basket of six major currencies, was down more than 5%.

The weak dollar has helped fuel a surge in the price of dollar-priced commodities, such as oil. That, combined with economic woes, took its toll on Wall Street, especially in the second quarter. In the first half of 2008, the Dow Jones Industrial Average lost 14%,  the broad S&P 500 Index  fell 13% and the tech-heavy Nasdaq Composite slumped 13.6%.

The second quarter also brought some new records for major currencies. In March, the euro rose as high as $1.5903, its loftiest level since it began trading in January 1999. Against Japan's currency, the dollar slid to a 12-year low of 95.75 yen.

But with the Fed signaling it could be on hold -- and some investors even betting on a hike before the end of the year -- those lows just might stand for a while, and the dollar could slowly gain traction for a long-awaited turnaround as growth in other regions starts to slip.

"Our directional view is that the dollar is likely to hit gradually higher to the end of this year," now that the likelihood of another U.S. interest rate cut is fading away, said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney.

By contrast, European Central Bank officials are clearly focusing on inflation over growth. They backed up their recently hawkish talk Thursday by raising the central bank's key lending rate for the first time in 13 months by a quarter of a percentage point, to 4.25%, as expected.

Some had believed the hike could be a one-shot deal -- and ECB President Jean-Claude Trichet appeared to back up those views by telling reporters after the decision, "starting from here, I have no bias" on interest rates.

Last month, the dollar got a new friend in a high place: Ben Bernanke explicitly warned the dollar's weakness was contributing to U.S. inflation and signaled that the world's most powerful central bank would not welcome a further decline of the greenback on international currency markets.

Bernanke surprised markets in light of the central bank's long-standing practice of avoiding comment on the dollar, instead deferring to the Treasury.

The dollar's recent low value has "contributed to the unwelcome rise in import prices and consumer-price inflation," Bernanke said in a June 3 speech, adding that the Fed and Treasury are watching the situation closely.

Another euro test
To be sure, not all strategists think the Fed has put its interest-rate ax back in the woodshed.

"We continue to expect that the next move in U.S. interest rates is down," to1.50% by the end of the year, wrote Ashraf Laidi, chief foreign exchange strategist at CMC Markets US, in a note to clients.

Easing will continue not only due to erosion in economic fundamentals, "but also the negative repercussions to the already shaky financial system," he said.

Even some who predict a gradually weakening euro in 2008 say the worst might not be over for the greenback.

"In the near term, actual and expected ECB tightening will likely remain supportive of the euro and, with U.S. economic performance still at risk, another euro/dollar test of $1.60 remains likely," wrote Robert Sinche, head of global currency strategy at Bank of America in New York, in a note to clients.

"However, our forecast of gradual euro/dollar weakening during the latter third of the year, with a move toward $1.50 by year-end, results more from potential euro weakening, albeit from very strong levels, than dollar strength," he added.

Dollar well above yen lows
Against the yen, the dollar is also an interest rate story.
Since February 2007, the Bank of Japan has kept its benchmark unsecured overnight call loan rate at 0.5%, the lowest in the developed world.

The BOJ shifted to a neutral stance from a tightening bias in April, when it also downgraded its economic assessment.

Despite wavering risk appetite amid global turmoil, the interest rate differential will continue to support carry trades, which will weigh on the yen to the benefit of other currencies. In such trades, investors borrow funds at lower rates to invest in high-yielding assets.

Indeed, despite the dollar's rough ride this year, it's still trading significantly above 79.85, set in April 1995 -- its post-World War II low -- and economists don't expect a buck to be worth less than a 100 yen coin anytime soon.

RBC Capital Markets forecasts the dollar to buy 109 yen in the third quarter, and 110 by the end of 2008.

 ;D

This is a rise?

Fears of global slowdown buck up the dollar
Wednesday August 6, 2008
Dollar rises against major currencies as fears of economic slowdown grip Europe, Asia


The dollar climbed to eight-week highs against the euro and seven-month highs agains the yen as fears of a global slowdown helped the dollar continue its rally.
The dollar rose to 109.54 Japanese yen from 108.17 yen late Tuesday.


Meanwhile the 15-nation euro dropped to $1.5420 from $1.5473 after going as low as $1.5396, and the British pound sank to $1.9475 from $1.9562 ahead of interest-rate decisions by the European Central Bank and Bank of England Thursday.

The dollar gained as gloomy economic signs came in from abroad.

The Japanese government said a monthly index of business conditions was worsening, setting off the yen decline, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon Corp.

Meanwhile, the German government said industrial orders dropped unexpectedly in June, with orders from elsewhere in Europe leading a decline that underlined pessimism about the outlook for the continent's biggest economy. Orders dropped 2.9 percent in June, following a 1.4 percent drop in May, the Economy Ministry said.

Ashraf Laidi, a currency strategist at CMC Markets, said the decline, the seventh in a row, along with a leaked report by German newspaper Sueddeutsche Zeitung claiming that German second-quarter GDP likely shrunk by 1 percent, would weigh on the European Central Bank at its Thursday meeting.

"The hawkish rancor of (ECB President) Jean-Claude Trichet is likely going to be toned down considerably," Woolfolk said. Rate-hike talk will be cast aside, and Great Britain may signal future rate cuts, he said. "The ECB and Bank of England don't have much to cheer about."

The ECB is expected to keep its benchmark rate unchanged at 4.25 percent, given the 4.1 percent inflation in the 15-nation euro zone, while the BoE is expected to keep its rate steady as well, at 5 percent.

The Federal Reserve left the benchmark U.S. federal funds rate unchanged at 2 percent on Tuesday. Before rising inflation forced a pause in June, the Fed had cut rates seven times since the fall in hopes of reviving the flagging U.S. economy.

Talk of the Fed hiking rates had driven the dollar higher over the past three weeks, but Tuesday's announcement hinted that a weak economy was still a risk, and many analysts talked down the chance of a rate hike.

Higher interest rates abroad can push down the dollar, as investors transfer their funds from American assets to overseas, where they can get higher returns on their investments.

Meanwhile, oil futures touched below $118 a barrel Wednesday, while gold dropped below $880 an ounce. Commodity-exporting countries whose currencies were buoyed as long as commodities shot higher, such as Canada and Australia, have seen the value of their dollars eroded.

The dollar rose to 1.0477 Canadian dollars from 1.0428, circling year highs. The Australian dollar, meanwhile, fell to its lowest point in more than four months, to 90.62 U.S. cents.

In other New York trading, the dollar climbed to 1.0602 Swiss francs from 1.0539 francs.

"It is not simply a dollar rally but a sell-off in the Europeans," said Woolfolk.

The US Dollar index closed just above its 200-day moving average Wednesday for the first time since October 2006, and also just above its high from mid-June.  The breakout of its trading range that had been in place since March is a win for Dollar bulls.

Dollar soars higher on euro zone woes
Friday August 8,2008
Dollar soars against major currencies as euro area struggles, commodities sell off


The dollar soared Friday in what analysts are calling a game-changing move as concerns about the deteriorating euro zone economy gripped investors and commodities sold off.
In late trading in New York, the euro came off its lows to $1.5013 from $1.5328 late Thursday. Earlier in the day, it sank as low as $1.5004. It is the highest point for the dollar since late February, and a rapid recovery from July 15, when the euro hit a record against the dollar at $1.6038.


"There's a real capitulation under way," said David Gilmore, partner at Foreign Exchange Analytics in Essex, Conn. "In 24 hours it's gone from $1.55 to $1.50, which is highly unusual. That changes your game plan for the marketplace."

The euro also sank against the British pound and the Japanese yen -- both of which are also weakening against the dollar.

On Thursday, the European Central Bank and Bank of England left their key interest rates unchanged at 4.25 percent and 5 percent, respectively. ECB President Jean-Claude Trichet issued a warning on inflation and said economic growth figures for the second and third quarters of 2008 would be much weaker than in the early part of the year. He signaled that an interest-rate increase to counter inflation would probably not be forthcoming.

Higher interest rates can buck up a currency, as investors transfer assets where they can get better yields, while lower interest rates can weaken a currency.

The pound, meanwhile, recovered slightly $1.9198 after earlier selling as low as $1.9145, its lowest point since November 2006. On Thursday, the pound sold for $1.9436. But the dollar leaped to 110.24 Japanese yen from 109.45 yen, its highest level since January.

"This is payback time for the European currencies against the dollar," said Ashraf Laidi, currency strategist at CMC Markets. "These currencies have to retreat to better reflect the sharp deterioration in economic fundamentals in (the euro zone) region. This is not to say there's been an improvement in U.S. fundamentals."

Earlier in the week, the Federal Reserve maintained the benchmark federal funds rate at 2 percent.

Comments by ECB President Jean-Claude Trichet after Thursday's decision "confirmed that the window of opportunity for further rate hikes has been slammed shut by the cold blast of negative data releases that swept through the euro zone in the last few weeks," said Marco Annunziata, an economist at UniCredit in London.

Recent economic indicators from major euro zone economies such as Germany, France and Italy have painted a gloomy picture.

The ECB last month moved to cool inflation by raising borrowing costs for the first time in a year, by a quarter percentage point to 4.25 percent, while the Bank of England has left rates unchanged since April, when it reduced its benchmark figure by a quarter of a percentage point to 5 percent.

Crude oil futures, meanwhile, dropped below $116 a barrel, and oil-producing countries' currencies sold off. Gold is at two-month lows.

"Lots of investors have been on high commodity prices and a low dollar, and those bets are getting destroyed," Gilmore said.

The Canadian dollar, which leapt higher last fall on the back of surging oil and other commodities, is back down again to 12-month lows against the U.S. dollar, while the Australian dollar is back to mid-January levels. The New Zealand dollar is at 11-month lows.

The dollar rose to 1.0685 Canadian dollars from 1.0517, and hit a six-month high of 1.0837 Swiss francs before retreating to 1.0810 francs. On Thursday, the dollar bought 1.0625 francs.

Is This The Dollar Breakout?

August 8th, 2008 will be known for two events: the start of the 2008 Beijing Olympics and the massive, bullish breakout for the US dollar. The currency made its move across the board, taking out significant technical (and psychological) levels against most of its major counterparts and marking its biggest one-day advance on a trade-weighted basis in over five years.

Five months after testing a record low and through four months of congestive price action, fundamentals have slowly built up (though the US data hasn't exactly been encouraging) behind an eventual rebound in the massively oversold currency. With liquidity draining for the weekend, the market now has time to contemplate: is this the true trend reversal and how will this effect my trading in the long term?

Shifting Gears On Fundamentals

Getting to the point where traders and economists are debating whether or not we have entered a new bull leg for the dollar – where until recently the consensus was the currency would soon be replaced as an anchor to pegs and could lose its status as the world's leading currency to the euro – took time and a global economic slowdown that would ultimately leave the beleaguered US with the most impressive balance sheet.

Since last summer's subprime meltdown, the Federal Reserve has cut the benchmark lending rate by 325 basis points, the housing sector has entered a recession not seen since the Great Depression, and employment numbers have contracted for the longest period since 2005. With conditions like these, why would the greenback be on the verge of a major advance? The answer is simple. Because despite the United State's current predicament, the outlook for the world's largest economy is fundamentally better than that of its industrialized counterparts.

From a growth perspective, revisions to annualized GDP numbers show that the US contracted for the first time in six years through the final quarter of 2007. However, by the time this slowdown was confirmed, more timely data was already suggesting the worst has already passed with second quarter growth figures reporting 1.9 percent expansion. For a fundamental backdrop that has been completely overshadowed by consistently disappointing data, this broad reading alone has catalyzed confidence that recessions in certain areas of the overall economy will be leveled out by strength in others. In contrast, the forecast for other economies is deteriorating. The Euro-Zone GDP number due next week is expected to match its slowest annualized pace in four-and-a-half years as domestic spending falters and exports suffer from curtailed demand and unfavorable exchange rates. In the UK, the local housing recession is already the worst in recent history and it looks to worsen with time. Add to that, inflation that has stifled business activity and consumer spending; and projections for growth are low. Finally, there is Japan. The Asian giant has struggled since the late 90s financial crisis, and recently consumer spending and a housing slump has slipped into critical levels. To top it off, for the first time since 2001, the Japanese government's assessment of domestic growth was downgraded to 'weakening' – what many consider an admission that the economy has already entered a recession.

The Outlook

Today's dollar rally easily marks a technical turning point for many of the most liquid dollar-denominated majors (see Jamie's technicals for a full briefing on this); but the currency certainly hasn't cleared all hurdles. Technically, while EURUSD and GBPUSD have dropped below major support at 1.5300 and 1.9400 respectively, there is still resistance for the greenback on a trade-weighted basis. A look at the Dollar Index reveals the dominate trend from the late 2005 bearish trend reversal has yet to be tested. This will no doubt require significant momentum on the dollar's part to charge up enough strength to breach such a noteworthy level.

The fundamental scene is even more difficult to reconcile with a sustained dollar rally. While its major trade partners are just now catching the same cold that the US has been trying to shake, conditions in America are still worse. The housing recession is deepening, business investment has dried up, lending has frozen and now the consumer (the largest component for economic growth) is being assailed. Combine an unemployment rate at a four-year high and wage growth slowing to a two-and-a-half year low with inflation not seen in 17-years and we have sentiment near three decade lows. If the consumer sector falters, the chances for GDP to further rebound on the virtue of exports alone are slim. In turn, concerns of a recession would offer no confidence for rate hikes.

For the dollar to maintain its current trajectory and confirm a major trend change, the currency and economy will need to answer these issues. Regardless of the technical breaks in the majors, the dollar will need to break resistance in the trade-weighted index. For the long term, the fundamentals will need to back the dollar fully. Growth factors will grow increasingly important – specifically consumer spending and sentiment, business activity, trade and the housing market will need to show genuine evidence of a bottom. Ultimately, though, the true determinate will be interest rate expectations. Three quarter point hikes are scheduled for the coming 12 months, but such a major exchange rate event will need confirmation of just such a monetary policy change early in the forecast period. What's more, a Fed hike would need to outpace any hawkish ambitions from other central banks.

Dollar gain continues after trade deficit shrinks
Tuesday August 12, 2008
Dollar upsurge continues after trade deficit shrinks and oil prices slide


The dollar upsurge continued Tuesday after Washington said the U.S. trade deficit shrank and exports rose to a record high, and as oil futures slipped back under $114.
In late New York trading, the 15-nation euro came off an early bump to fall back to $1.4916 from $1.4928 late Monday. Earlier, the euro zone currency hit a new six-month low of $1.4813.


The 15-nation euro fell below $1.50 on Friday for the first time since February.

The British pound, meanwhile, fell to $1.8997 from $1.9120. Earlier in the session, it dropped to its lowest point since November 2006 at $1.8967.

The Commerce Department reported the U.S. trade deficit fell unexpectedly in June to $56.8 billion from $59.2 billion in May, the smallest imbalance in three months, even as oil imports rose. U.S. exports jumped to a record $164.4 billion.

A historically weaker dollar earlier this year helped spark the rise in exports abroad, propping up U.S. gross domestic product. But fears of a global slowdown and a stronger greenback means the trend may not hold.

The dollar slipped to 109.40 Japanese yen from 110.03 yen.

Meanwhile, oil fell to a new three-month low and settled at around $113 a barrel, even after oil company BP PLC said it shut down a 90,000-barrel-a-day pipeline running through Georgia as a precaution. The pipeline is closed indefinitely.

This year, oil and the dollar have tended to trade in opposite directions. A weakening dollar drove investors to oil, and boosted the commodity's price. Now sagging oil is making the greenback look more attractive.

The International Energy Agency, a Paris-based energy watchdog, said in a monthly report that oil prices would remain high. Demand for the commodity in developing countries could help offset the slowing demand in the developed world, and it is too early to say whether the recent drop in oil prices is the start of a downside trend.

The euro's slide began last week after the European Central Bank and the Bank of England kept their key interest rates unchanged. ECB President Jean-Claude Trichet acknowledged economic slowdown in the euro zone, with more troubles to come.

He gave no signal that a rate hike was planned despite problematic inflation. The British economy has also seen sliding home prices and growing inflation, while the Japanese government has said its economy is weakening as its prices climb.

On Tuesday, the British government said consumer price inflation grew to 4.4 percent in July from 3.8 percent in June. That is double the government's target rate of 2 percent.

Britain and the euro zone are in a bind, as raising interest rates to fight inflation would further tax their economies, while cutting rates in hopes of sparking growth would increase inflation.

Higher interest rates can prop up a currency, as they make a country's assets look more attractive. Investors earn a higher return on their funds there, and can pull money out of assets from countries with lower interest rates.

In other late New York trading, the dollar fell to 1.0621 Canadian dollars from 1.0687, but edged higher to 1.0880 Swiss francs from 1.0857 francs.



below are the 1 year and 6 month charts...

Dollar up despite retail data; soars vs. pound
Wednesday August 13, 11:18 am ET 
Dollar rolls on despite retail data, oil's edge higher; rout of pound continues


NEW YORK (AP) --The release of U.S. retail sales and oil's turn up didn't halt dollar momentum Wednesday, and the rout of the British pound continued amid England's economic woes.
The 15-nation euro slid to $1.4875 in New York Wednesday morning from $1.4916 late Tuesday. The euro fell below $1.50 on Friday for the first time since February and is well off its high of $1.6038 set on July 15.


The British pound, meanwhile, sank to $1.8662 from $1.8997 the night before. The currency is at its lowest point against the dollar since October 2006.

On Wednesday, the British government said the jobless rate grew, while the Bank of England said that inflation will jump to 5 percent before retreating. The central bank finds itself in a bind: Cutting interest rates may send inflation higher, but tightening rates to fight it could slow economic growth -- dangerous in the face of rising unemployment.

Higher interest rates can prop up a currency, as investors earn higher returns on their investments, while cutting interest rates often sends currencies spiraling lower.

On this side of the Atlantic, July retail sales fell by 0.1 percent, the first decline since February. It was a worse report than expected. The Commerce Department also said Wednesday that businesses added to their inventories in June at a 0.7 percent pace, the fastest rate in five months.

But the disheartening reports, which pulled Wall Street lower, couldn't burst the dollar bubble.

"Last week was a watershed week for the dollar," said Meg Brown, senior currency strategist at Brown Brothers Harriman. "The trend has changed against the euro."

And the soft retail sales, while indicative of slower growth, didn't suggest a contraction, or recession in the U.S., she said, while other countries do seem to be contracting.

The dollar's skyrocket against the euro began last week after the European Central Bank and the Bank of England kept their key interest rates unchanged.

ECB President Jean-Claude Trichet acknowledged an economic slowdown in the euro zone, and concern over high inflation, but gave no signal that a rate hike was planned.

But the greenback fell to 1.0871 Swiss francs from 1.0880 francs and slumped to 108.57 Japanese yen from 109.40 yen, despite the announcement from the Japanese government that its gross domestic product contracted in the April-June period for the first time in a year.

GDP contraction often heralds a recession, but Japanese officials said the downturn won't be as severe as the "lost decade" cratering of the 1990s.

"Japanese domestic factors haven't been what's driving the yen," Brown said. "There's been a sell-off in the yen crosses, it has weighed on the euro and it's certainly weighed on sterling."

Currencies are traded in pairs. Investors who bet that the euro or pound would strengthen while the yen weakened are curtailing those bets, driving up the yen in comparison to the dollar.

In other New York trading this morning, the U.S. currency rose to 1.0675 Canadian dollars from 1.0621, even as oil rose jumped almost $2.

Canada's currency, the loonie, saw many gains last year on the back of rising oil and gold prices. Canada is a big exporter of commodities.

Dollar's prospects may be brighter after long drop
Friday August 15, 2008
After long decline, dollar's rally has some believing the currency's prospects are improving


                                             ;D The buck may be turning into a bull.  ;)
The U.S. dollar extended its recent rally against major currencies on Friday as commodities fell and European and Japanese economies faltered. After sliding for years, the dollar may finally be on the way back up, some analysts argue.


The currency rose against the pound for the 11th straight day on Friday, to $1.85 -- its longest winning streak in 37 years. As recently as July, one pound would buy two dollars. At the same time, the dollar climbed to its strongest level in almost six months against the euro, which fell to $1.47, and to near a seven-month high versus the yen.

So far, the trend has helped push oil prices lower. Long term, a stronger dollar has a range of consequences. It makes imports cheaper for Americans, and makes it more expensive for foreign companies to buy U.S. assets such as Anheuser-Busch Cos., which is being sold to Belgian-based brewer InBev for $52 billion.

A stronger dollar would probably come as a relief to many European businesses, too, since it makes their exports to the key U.S. market more price-competitive.

The dollar reached an all time low on July 15 of $1.60 to the euro, down from a peak of 82 cents to the euro in 2000. The dollar's decline is blamed on the large U.S. trade and budget deficits, investment flows out of the United States, and lately by interest rate cuts by the Federal Reserve.

Some think it's only up from here. The dollar is now benefiting from the widespread sense that prices for commodities such as oil and gold are on the brink of a massive fall, as traders gamble that a slowing global economy could lead to diminished demand.

"There's a fear that the whole commodity boom is going to end, that the bubble is going to burst," said James Hughes, market analyst at financial traders CMC Markets. "That's giving the dollar a bit of cheer."

Oil dropped below $112 a barrel on Friday -- down almost 24 percent from its all-time high of $147 a month ago. A rising dollar typically pushes oil lower as investors who buy crude and other commodities as hedges against inflation start dumping their positions to cut their losses. A stronger greenback also makes dollar-denominated commodities more expensive to overseas buyers, further eroding demand.

Gold, silver and copper are also trading at multi-month lows, with the spot price of gold falling as far as $789 an ounce -- its lowest since December. Prices for vegetable oil, corn, wheat and rubber are falling, too.

As a result, investors who pulled money out of dollar-denominated investments and poured it into commodities are now reversing course -- and buying dollars again.

The dollar is also profiting from weakness among many of the rich nations' economies.

On Thursday, the European Commission said the economy in the 15 countries that use the euro shrank by 0.2 percent in the three months to June, as inflation driven by higher commodities prices wiped out growth. It is the first time since the launch of the euro that the region of 320 million people has suffered negative growth. Japan also reported economic shrinkage last quarter.

Meanwhile, fears that Britain is heading for recession -- amid plummeting house prices, plunging consumer confidence and rising inflation -- worsened on Wednesday after Bank of England governor Mervyn King predicted that the British economy would stagnate for the next year.

"The U.S. was the first economy to hit trouble" in the current global economic and financial crisis, said Tim Clayton, chief strategist at currency advisory consultancy Investica. "Now people are realizing that the problems aren't limited to the U.S. In some places they might even be worse."

An HSBC research note published Friday agreed: "The USD's upward momentum is developing freight-train-like qualities, shredding those who attempt to fade the move but rewarding those on board."

It said any temporary dollar dips would be limited by strong fundamentals -- "primarily the notion that the rest of the world is finally following the U.S. down the tubes."

President Bush and Treasury Secretary Henry Paulson say they favor a strong dollar, but the key may be the shifting stance of the Fed. It's clear, economists say, the Fed is done cutting interest rates for now with inflation at a 17-year high of 5.6 percent. Cuts boost growth, but can worsen inflation.

Lower rates would weaken the dollar by causing deposits in the currency to become less profitable and triggering investors to sell it. And now it's Europe's turn to face the prospect of lower rates, as the Bank of England and European Central Bank may need to cut to boost flagging growth.

There is less consensus on whether this is the beginning of a long upswing, or a correction of runaway pessimism about the dollar that will flatten out at around these levels.

"We have seen the lows of this multiyear cycle, but I don't see the dollar going on a long bull-run at this point," said Investica's Clayton.

Others, like CMC's Hughes, argue that there is good evidence, looking at historical cycles, that this could be the start of relatively steady long-term dollar gains.

"The cornerstone of technical analysis is that history repeats itself," he said. "In that case, this could be the start of the bull-run that leads us up to a strong point at the end of the decade."

Dollar gains ground on Friday
Friday August 22, 2008


The dollar staged a rebound Friday, after a report on the United Kingdom's economy showed lower-than-expected growth.
Comments by Federal Reserve Chairman Ben Bernanke that persistent problems in the financial markets threaten the nation's economy did little to change the dollar's upward move.


The 15-nation euro traded at $1.48, down from $1.49 late Thursday. The greenback bought ¥110.08, up from ¥108.44.

Global economies slow: The dollar was sharply higher versus the pound after the United Kingdom's 2nd-quarter gross domestic product was revised to no growth, below economists' forecast of a 0.2% increase, according to Tom Benfer, director of foreign exchange at Bank of Montreal.

The pound was trading at $1.8526 Friday, sharply below $1.8778 late Thursday. When "one currency moves that far, the other currencies follow to an extent," said Benfer.

This follows reports showing economic declines in the quarter in both Japan and the euro zone, said Vassili Serebriakov, currency strategist at Wells Fargo.

"We have seen strong evidence that economic growth is slowing globally," he said.

As other economies struggle, the dollar has had an opportunity to climb. "A number of economies are slowing sharply - that has helped the U.S. dollar over the past couple weeks," said Serebriakov.

The dollar has been trending higher for the past 2 weeks. "The events of the previous 2 weeks strongly suggest that we have seen the cyclical bottom in the U.S. dollar," said Serebriakov.

Bernanke: The Fed Chairman spoke about the economy at an annual Jackson Hole, Wyo., symposium sponsored by the Kansas City Federal Reserve.

"Although we have seen improved functioning in some markets, the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole [last August] has not yet subsided," Bernanke said. "Its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment."

"The initial reaction as far as the dollar is concerned is muted," according to Benfer. The stock market firmed after the speech, however, and he said that is "generally supportive of the dollar."

"He did indicate that the Fed is watching developments very, very closely - they are not taking their eye off the ball," said Benfer.

"The markets are looking for a blueprint, a battle plan, a sense of direction," said Benfer. "If the markets get some sense that the central bank, the Treasury have their arms around this - even if it takes a long time - that will be a positive."

Dollar and oil: Oil prices tumbled by the 2nd-largest 1-day drop ever, in dollar terms, on the back of the stronger dollar. Crude futures closed $6.59 per barrel lower to settle at $114.59 on the New York Mercantile Exchange.

The drop in the price of oil was the biggest single-day fall in dollar terms since Jan. 17, 1991, when oil fell by $10.56.

On Thursday, the dollar lost ground on fresh concerns about the financial sector. As the dollar weakened, investors moved their funds into the commodity market, helping oil prices jump more than $6 a barrel.

"The key short-term driver [for the dollar] has really been the oil price," said Serebriakov.

High oil prices hurt U.S. companies and consumers, affecting economic growth.

"Higher oil prices have significant effect on the U.S. growth - that is the primary reason why oil is bad for the dollar," said Serebriakov.

In addition, a weaker dollar makes oil cheaper to foreign investors, because crude oil is traded in U.S. currency globally. In addition, when investors watch the dollar fall, commodities appear to be a safe haven for their assets.

"The oil and the dollar have moved together, but it is not a simple answer as to what is driving what," said Serebriakov. "They go hand in hard, and it is the chicken-and-the-egg problem."

Dollar climbs back as Bernanke speaks, oil drops
Friday August 22, 2008
Dollar rises as Bernanke touts inflation control and oil edges lower

The dollar turned up against major currencies Friday as Federal Reserve Chairman Ben Bernanke said he would "act as necessary" to control inflation at an economics conference and as oil retreated again. The British pound dropped to a 25-month low.


The euro fell to $1.4775 in late New York trading from $1.4877 late Thursday.

At the economic symposium in Jackson, Wyo., Bernanke said the "financial storm" in the U.S. "has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment."

He also said the inflation outlook is uncertain but will probably moderate later this year.

While the Fed can try to contain inflation by raising interest rates -- which could also support the buck by making American investments more attractive -- growing unemployment and concerns about economic growth may stop it from doing so.

Lower interest rates can undermine a currency as investors transfer their funds to assets with better returns.

"The dollar has taken back some of its losses. We've got information that indicates, 'Look, no matter how bad things are going in the U.S., things look worse elsewhere,'" said David Watt, senior currency strategist at RBC Capital Markets in Toronto.

The British pound, meanwhile, erased Thursday's gains, dropping to $1.8519 from $1.8751. Earlier in the day, the pound had fallen as far as $1.8503, its lowest point since July 2006.

On Friday, the British government said economic growth in the U.K. was flat in the second quarter, the first time the economy didn't grow for almost 16 years. Economists say contraction in the July-September period is likely, meaning Britain could be in a recession. The U.K. housing market is the worst in 30 years, while inflation is twice the recommended government limit.

The Bank of England and the European Central Bank early in August left their interest rates unchanged, at 5 percent and 4.25, respectively. The Fed cut its rates seven times from September to June. Its next meeting is on Sept. 16, and many economists believe that the U.S. central bank is leaving the rate steady for the near future.

"The Fed has already moved interest rates a lot," said Watt. "With each passing day we are one step closer to both (European) central banks cutting interest rates."

Meanwhile, light, sweet crude oil futures fell $6.59 to settle at $114.59 a barrel on the New York Mercantile Exchange. On Thursday, oil rose almost $6, while gold gained more than $22.

Investors have used oil as a hedge against a slumping dollar. The prices of oil and gold tend to move inversely to the dollar.

The dollar also rose to 110.03 Japanese yen, from 108.65 yen Thursday; climbed to 1.0985 Swiss francs from 1.0881 francs; and rose to 1.0479 Canadian dollars from 1.0456 Canadian dollars.

US Dollar Rebounds From Key Support, Bernanke Remains Complacent
Friday August 22, 2008


The US dollar staged a solid recovery on Friday, as the dollar index bounced from key trendline support that formerly served as resistance from late 2005 – 2007.



Meanwhile, Federal Reserve Chairman Ben Bernanke spoke on financial stability at the Kansas City Fed's annual Jackson Hole conference. His commentary didn't necessarily reveal anything new, though he did say that "the recent decline in commodity prices, as well as the increased stability of the dollar, has been encouraging. If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next year." However, the rest of Mr. Bernanke's speech was status quo, as he said "the inflation outlook remains highly uncertain" and that the "FOMC is committed to achieving medium-term price stability and will act as necessary." Nevertheless, despite the fact that the financial health of the two US mortgage giants Fannie Mae and Freddie Mac remain a major concern in the markets, Mr. Bernanke said nothing about them. It appears that when it comes to that sensitive issue, Mr. Bernanke will allow US Treasury Secretary Henry Paulson to do all the talking.

Looking ahead to next week, the US dollar faces heavy event risk as S&P/Case-Shiller home prices, consumer confidence, durable goods orders, and Q2 GDP revisions will all hit the wires. However, the minutes from the Federal Reserve's August meeting may be the event to watch, especially if the commentary signals any sort of bias within the FOMC.

Dollar Boosted By GDP, But Will NFPs Do The Same?
Friday August 29, 2008


Event risk this past week boasted a significant probability of volatility and potentially a breakout from the dollar's recent congestion. Looking at the week ahead, the potential for a major greenback move are doubled with a number of first tier indicators anchored by the market's top billed non-farm payrolls release.


Fundamental Outlook for US Dollar: Bearish

- Strong 2Q GDP revision puts recession fears on hold; but is the outlook really so bright?

- FOMC minutes suggests members "generally" anticipate next policy change would be a hike

- Housing, confidence and consumer data deteriorating despite a smattering of modest improvements

Event risk this past week boasted a significant probability of volatility and potentially a breakout from the dollar's recent congestion. Looking at the week ahead, the potential for a major greenback move are doubled with a number of first tier indicators anchored by the market's top billed non-farm payrolls release. Looking at this end-of-the-week gauge first, the labor report will have a greater influence on the fundamental outlook on the US economy (and its currency) than usual. This time around, the leading economic indicator will be measured against last week's strong 2Q GDP revision and the hawkish comments from the FOMC minutes. If, as expected, payrolls contract for an 8th consecutive month; the market would certainly have to review their positive outlook for growth through the second half. Considering the fact that 3.1 percentage points of the 3.3 percent annualized pace of growth was won by trade, there is clearly room for skepticism about activity in the second half. As employment and wage continue to sink, consumer spending (accounting for 70 percent of the market) will add huge weight to the housing recession. And, should the growth outlook fade, forecasts for an aggressive period of Fed hikes would certainly follow.

Before the financial markets head into the volatility explosion that is the NFPs, the dollar will need to first shake the lethargy from the extended holiday weekend in the US. History shows liquidity and market activity rise significantly after the Labor Day holiday; and there will be plenty of data and exogenous event risk ready to jump start the rebound. Starting with the scheduled releases, the combination of the ISM's manufacturing and service sector activity reports will give a far more timely read on economic activity than the GDP revision did this past Thursday. And, considering both sectors are steeped in a long-term downtrend, the outlook is not promising. Other sleeper releases are likely to the 2Q mortgage delinquencies and the ICSC chain store sales figures – for good readings on the housing recession and health of consumer spending respectively. Outside of the safe confines of the docket, there is also be the lingering threats from Hurricane Gustav and the possibility that Freddie Mac/Fannie Mae or a major US bank may go under. Either event could have its own devastating impact on economic activity.

Dollar Rallies After Better Than Expected GDP
Thursday, 28 August 2008

- Dollar Rallies After Better Than Expected GDP
- Euro Has A Second Chance At Event Risk With Inflation Expectations
- Pound Falters As Earnings Reports Show Housing Strain, Event Risk Picks Up Thursday
- Oil Drop Competes With Canadian And Australian Data For Forex Action
- Yen Looks To Key Japanese Data For Action As Long As Carry Is Quiet


Dollar Rallies After Better Than Expected GDP
Today, the U.S. dollar recovered from yesterday's losses after a government report showed that the U.S. economy expanded faster than previously estimated. In the second quarter of 2008, Gross domestic product increased at a 3.3 percent annual pace, compared with an initial estimate of 1.9 percent, the Commerce Department said today in Washington. The U.S. economy has been helped by a favorable exchange rate of the U.S. dollar against its major trading partners and a surge in exports contributed the most to U.S. growth in almost three decades. In fact, during Q2 of 2008, the U.S. trade deficit narrowed to $376.6 billion and added 3.1 percentage points to growth, the most since 1980. Yet, beyond some improvements on international trade, the U.S. economy remains relatively weak. Today, the U.S. Labor Department said that 425,000 Americans filed initial claims for unemployment during this week, well above the 321,000 average of last year. This brings the total number of people unemployed but actively looking for a job to more than 3.4 million, the highest number since November 2003. Nonetheless, the rapid weakening of economic growth outside the United States is likely to continue to help the U.S. dollar. Indeed, a more accommodative monetary policy could be needed to prevent Europe from falling into a recession and lower interest rate differentials could make the euro and the sterling less attractive to foreign investors.

Euro Has A Second Chance At Event Risk With Inflation Expectations
With heavy-hitting economic data populating the European economic docket, event risk traders were ready to dive into the market Thursday. However, with the data coming in at opposite ends of the spectrum and a major US release breaking the fundamental flow, there would end up being no consistency to the euro's price action Thursday. Looking at the data triggers from the docket this morning, we began with a bullish tone. German unemployment dropped four times faster than economists had expected. The number of jobless tumbled by 40,000 to 3.2 million – notably shrinking the jobless rate to a 16-year low 7.6 percent. While this was clearly a strong report, market participants seemed less than impressed. As the 32nd monthly contraction in joblessness, improvements in this area of the economy seemed to be priced in for the foreseeable future. What's more, with business confidence at a three-year low and the German economic contracting through the second quarter, it seems only a matter of time before labor trends follow suit. Consumer spending seems to have already succumbed to the economic malaise with the German retail PMI number slipping to an 8-month low just minutes later. Looking ahead to Friday, the euro may not go quietly into the weekend. After most of its major member economies have released their respective employment figures, Euro Zone officials plan on reporting labor health for the entire region. More interesting though is the EZ CPI estimate. With ECB members calling market speculation for a rate cut premature, traders will want to find some confirmation on the presence of inflation. And, even though consumers have a habit of over stating the outlook for their cost of living, the consensus is looking for the estimate to pull back from its more than 12 year high.

Pound Fundamentals Deteriorate Fast As The Currency Pushes 13 Month Lows
The health of the UK economy seems to deteriorate with each economic release – the British pound is paying for it. Today, the currency dropped to a fresh 13-month low against its US counterpart while testing a major level of support read in a 38.2 percent retracement of a seven year trend at 1.83. And similar to today's price action representing just another step forward in a nine-month trend, the event risk crossing the wires seemed just further confirmation that the economy was sinking quickly. The morning's activity began with the Nationwide Housing Price data for the August. The second of the major residential inflation indicators for the month, the indicator reported a drop in home prices that was more aggressive on a monthly and annual basis than the markets were expecting. With the BoE in mind, the 10.5 percent deflation through the year (the fastest pace of contraction in 18 years) is certainly the more pressing number. Later in the London session, the CBI retail data proved there was reason to doubt the ONS's report of a rise in retail sales through July. The less volatile report revealed sales activity was the weakest it has been in 25 years. With UK activity tumbling and the US data finally showing signs of improvement, GBP/USD's direction comes as little surprise.

Oil Drop Competes With Canadian And Australian Data For Forex Action
The Commodity Bloc was volatile Thursday. Influencing the Canadian, Australian and New Zealand dollars equally was a sharp drop in key raw material prices. The Reuters/Jeffries CRB Commodity Price Index dropped 1.9 percent with notable contributions from industrial metals, agriculturals and the energy complex alike. A particular driver for the loonie and Aussie dollar though was the pull back in crude from $120.50/barrel to below $116 after the IEA chief said he would release strategic reserves in the US should Tropical Storm Gustav disrupt production in the Gulf of Mexico. As a market driver, oil's volatility was certainly a headliner; but it wasn't the only influence for the commodity bloc. From Australia, event risk traders were taking in the business investment report for the second quarter and the Conference Board's leading economic index. The private investment gauge doubled expectations with its jump, but the growth forecast in the composite was more interesting. Forecasting a decline in growth for a fifth consecutive month, this data certainly supports expectations of a 25bp rate cut from the RBA next week. Out of Canada, the 2Q current account balance came up short thanks to a drop in investment income flows. Looking ahead to tomorrow, the Canadian docket will offer the top event risk for the day with a second quarter GDP number.

Yen Looks To Key Japanese Data For Action As Long As Carry Is Quiet
There was a lot of cross currency activity jostling the risk-sensitive yen crosses Thursday; but a global rally in equities and pull back in fear indicators (like the VIX) helped to steady currency. For fundamentals from Japan, a report from the Ministry of Finance reported Japanese investors netted their biggest weekly sale of foreign debt since at least 2001 in the period through August 23rd on fears of ongoing FX volatility and a potential bank collapse in the US. Over the final trading hours for the week, the economic calendar will heat up. Indicators for employment, consumer spending, factory activity and inflation will take an in depth reading of the economy's health.

Dollar pops on possible gov't plan for banks' debt
Thursday September 18, 2008
Dollar pops higher amid broader market rally after report of possible new gov't debt entity


The dollar popped Thursday following a report that the government was considering another market rescue in the form of relieving banks of their real-estate-related debt.
Just before the CNBC report, the 15-nation euro traded at $1.4370 in the late afternoon in New York, slightly down from $1.4376. The British pound slid to $1.8192 from $1.8245, while the dollar dropped to 104.93 Japanese yen from 105.24.


But after CNBC reported that Treasury Secretary Henry Paulson was considering creating an entity akin to the Resolution Trust Corp. set up during the savings & loan crisis of the 1980s, the Dow Jones industrial average leaped more than 400 points and the dollar gained strongly across the board.

The buck traded up to 105.65 yen, while the pound slid to $1.8172 and the euro fell to $1.4323.

The dollar had seen volatile trading against the major currencies as investors continued to flee to short-term government debt, oil and gold -- so-called "safe" assets amid the meltdown in global equities.

Earlier on Thursday, the Federal Reserve and other central banks across the world pumped dollars into money markets to try to relieve a credit crunch. The New York Federal Reserve injected $55 billion into the domestic system, while the Fed transferred up to $180 billion worth of dollars abroad.

"The dollar is rallying due to reports of what appears to be a remarkable intervention by the U.S. authorities," said Ashraf Laidi, chief foreign exchange strategist at CMC Markets US in New York. He added, however: "The gains from each of these announcements have proven to be very short-lived."

Laidi referred to the Fed's bailout of American International Group Inc. earlier this week and today's pumping of liquidity into global markets.

In other New York trading around 3 p.m., the dollar was unchanged at 1.1005 Swiss francs, and edged higher to 1.0691 Canadian dollars from 1.0672.

Later, after the report of a possible new government facility for banks' bad debts, the dollar jumped to 1.1066 francs, but fell to 1.0612 Canadian dollars.

CNNMoney.com
Dollar jumps on euro, pound
Wednesday February 4, 9:14 am ET
By David Goldman, CNNMoney.com staff writer


The dollar rose strongly against the euro and pound Wednesday, after weak economic reports from the region supported many investors' beliefs that the regions' central banks will cut interest rates on Thursday.


A report from Eurostat, the European Union's statistical agency, showed December's retail sales in the region fell 1.6% from a year ago. Weak consumer spending has helped derail the European economy, which has been in a recession since the second quarter of 2008.

As a result, some economists believe the European Central Bank will again cut its key interest rate from 2% on Thursday, despite earlier hints from the ECB that the central bank would hold rates steady for some time.

The 16-nation euro fell to $1.2852, down 1.4% from Tuesday's close of $1.3040.

The dollar also rose against the British pound, after a service sector industry survey showed that the U.K. sector shrank again in December, with companies cutting jobs at a record pace. A separate report from The National Institute of Economic and Social Research said the British economy will likely continue to shrink through October.

Accordingly, many economists forecast the Bank of England will cut interest rates to a record low of 1% from 1.5% at its meeting on Thursday.

The pound fell to $1.4429, down 0.2% from Tuesday's close of $1.4459.

Still, some analysts believe traders' reaction to the rate cuts has been more muted than in normal market conditions.

"The marginal reaction to rate cuts is worrying," said Neil Mellor, currency strategist at Bank of New York Mellon in London. "Rate cuts are having a decreasing impact, as central banks' measures are becoming more radical and more common."

Russian downgrade: Also supporting the dollar on Wednesday was Fitch Ratings' downgrade of Russia's long-term currency ratings to "BBB" from "BBB+."

The downgrade pressured the euro, as Russia will likely be forced to sell off euros to balance its portfolio of currencies. Russia, like many foreign countries, had sold dollars in exchange for its local currency - the ruble - which resulted in a net rise in euros in proportion to its reserve ratios.

"A number of central banks had been selling dollars, but now you're seeing the reverse: central banks are selling euros to reweight their portfolios," said Mellor. "The problem is, if you've got two awful currencies, you can't sell them against each other."

Yen trades higher: The dollar continued to fall against the yen, however. The yen has generally been in an upward trend against European currencies for the past several months, especially as the economic situation in Europe has deteriorated.

The U.S. currency has recently fallen against the yen when it has traded higher against the euro - and the dollar has risen against the yen when it is down against the euro. Traders tend to borrow the yen to fund investments in higher-yielding currencies, but when those currencies weaken, and investors reverse their positions, they are forced to buy back the yen, raising its value.

The dollar fell to ¥89.06, down 0.4% from Tuesday's close of ¥89.43.

Dollar climbs as Obama unveils housing plan
Dollar climbs amid bleak economic reports as Obama unveils $75 billion mortgage relief plan
Wednesday February 18, 2009


NEW YORK (AP) -- The dollar climbed against most major currencies Wednesday as President Barack Obama unveiled a $75 billion mortgage relief plan, amid a downgrade on economic growth from the Federal Reserve and bleak reports that industry production and construction of new homes in the U.S. have plunged to record lows.

The 16-nation euro fell to $1.2555 in late New York trading from $1.2615 late Tuesday. Earlier in the session, the euro hit its lowest point since late November at $1.2511.

Meanwhile, the British pound slipped to $1.4224 from $1.4266, and the dollar rose to 93.76 Japanese yen from 92.42 yen.

The Federal Reserve on Wednesday said it expects unemployment to rise to between 8.5 percent and 8.8 percent this year, up from the 7.6 percent it forecast last year. The Fed also sees the economy shrinking between 0.5 percent and 1.3 percent, instead of its prior outlook for 0.2 percent contraction to 1.1 percent growth.

The Fed's latest outlook, if true for 2009, would mark the weakest year of economic activity since 1982.

Earlier in the day, Obama announced a $75 billion plan meant to help prevent foreclosures for up to 9 million Americans.

The plan is more expensive than initially expected and aims to aid borrowers who owe more on their mortgages than their homes are currently worth, as well as those on the verge of foreclosure.

Separately, the Fed said Wednesday that production at the nation's factories, mines and utilities fell to a record low of 1.8 percent last month. Many economists expected a smaller 1.5 percent decline. The Fed's report showed that factory production dropped by 2.5 percent in January, with shutdowns at plants making autos and related parts figuring prominently in that decline.

Another report from the Commerce Department said construction of new homes and applications for future projects both plunged to record lows in January.

Also Wednesday, the European Commission said France and Germany will see their budget deficits go way above the ceiling of 3 percent of gross domestic product, a maximum fixed by rules designed to boost the stability of the euro. The EC said it will cut countries -- both in and out of the 16-nation euro zone -- some slack in complying with the bloc's sound finances rules.

The euro dropped Tuesday after ratings agency Moody's said that faltering economic conditions in eastern Europe would hit the local subsidiaries of major Western banks and potentially hurt their corporate parents, primarily in Austria, Italy, France, Belgium, Germany and Sweden.

"It is clear that the dollar has been benefiting from weak economic data, both at home and abroad, as well as rising risk aversion," said Michael Woolfolk, an analyst at Bank of New York Mellon. "We're seeing safe haven flows to the U.S. dollar, and we've seen the dollar now move into a new trading range."

In other late trading Wednesday, the dollar was flat at 1.2644 Canadian dollars, and advanced to 1.1762 Swiss francs from 1.1695 francs late Tuesday.

US Dollar Mixed as Obama Announces Housing Program, Fed Releases Bleak Economic Outlook
Terri Belkas, Currency Strategist [email protected]
Wednesday February 18, 2009, 3:46 pm EST


Euro Consolidates Losses, British Pound Remains Range Bound Despite BOE Minutes Signaling BOE Buying of Gilts

- Japanese Yen Down as Carry Trade Gain, Threat of Risk Aversion Lingers Ahead of BOJ Rate Decision



US Dollar Mixed as Obama Announces Housing Program, Fed Releases Bleak Economic Outlook

The US dollar saw a mixed day of trading on Wednesday, gaining against the euro, Swiss franc, and Japanese yen while falling versus the commodity bloc. Based on broad losses for the Japanese yen, the moves signaled slight improvements in risk appetite. There was a flurry of economic releases, as well as news from President Obama and the Federal Reserve. First, US housing starts and building permits both fell by more than 50 percent in January from a year earlier to their lower levels ever, with record keeping having begun in 1955. At the same time, import prices fell negative for the sixth straight month in January while the annual rate hit a fresh record low of -12.5 percent, thanks to a stronger US dollar and lower commodity costs. Additionally, industrial production contracted for the third straight month at a rate of 1.8 percent while capacity utilization hit a nearly 26-year low of 72 percent, as manufacturers slashed output on the back of waning demand.

Meanwhile, President Obama announced a $275 billion program that will move to cut mortgage payments by matching reductions lenders make to interest payments to 31 percent of the borrower's monthly income. The Treasury will also buy up to $200 billion of preferred stock in Fannie Mae and Freddie Mac, and detailed guidelines are due to be released on March 4. Finally, the Federal Open Market Committee's (FOMC) meeting minutes from January yielded few surprises, but in an effort to be more transparent, the central bank started to issue longer-term forecasts for growth, unemployment, and inflation. FOMC members apparently discussed on January 16 the prospect of creating an inflation target, and while they did not make a decision, today's press release shows that many FOMC members "judged that a longer-run PCE inflation rate of 2 percent would be consistent with the dual mandate," which is in line with the inflation targets of other central banks, such as the Bank of England and European Central Bank. Another notable factor was that "some FOMC members saw some risk for deflation," which is a timely comment because Friday's release of US CPI is forecasted to fall negative for the first time since 1955.

Looking ahead to Thursday, signs of deflation may continue to emerge at 8:30 ET as the US Producer Price Index (PPI) is forecasted to rise a slight 0.3 percent in January, while the annual rate may tumble to a nearly 7-year low of -2.4 percent. Meanwhile, the measure that excludes volatile food and energy costs could slow to an annual pace of 3.8 percent from 4.3 percent. Overall, the news would suggest that input costs are falling dramatically with declining commodity prices, which should translate into lower consumer prices. At 10:00 ET, the Conference Board's US leading indicator for the month of January is forecasted to fall flat, after rising 0.3 percent in December. However, any strength in the index may be contained to M2 money supply as a result of the Federal Reserve's efforts to boost liquidity. As a result, the headline reading may ultimately be deceiving and it will be important to look at the breakdown as well, including the components gauging average workweeks, jobless claims, consumer goods orders, orders for non-defense capital goods, and building permits. At the same time, the Philadelphia Fed index for the month of February could slump to -25.0 from -24.3, but if the report fares as the Empire Fed index, it could break below the November lows of -39.8. Indeed, the US manufacturing sector has been hit particularly hard by the recession, as both domestic and foreign demand has fallen.

Related Article: US Dollar Weekly Trading Forecast

Euro Consolidates Losses, British Pound Remains Range Bound Despite BOE Minutes Signaling BOE Buying of Gilts

The euro and the British pound both drifted lower for much of the day Wednesday, with EUR/USD consolidating losses after breaking below key support at 1.2725 on Tuesday while GBP/USD remains contained to a tight range of 1.4150 - 1.4300. There were few key European economic releases, though data showed that Euro-zone construction output failed to rise for the tenth straight month during December. However, the British pound faced major event risk on the release of the minutes from the Bank of England's February meeting, and immediately plunged to the bottom of its latest trading range. The minutes showed that all Monetary Policy Committee (MPC) members voted for a cut, though David Blanchflower dissented in favor of a more aggressive 100 basis point cut (the BOE only cut by 50 basis points to 1.00 percent), but the more notable factor was that all MPC members agreed that BOE Governor Mervyn King should ask Chancellor of the Exchequer Alistair Darling for permission to buy gilts in order to boost money supply. At the same time, the MPC suggested that they may avoid cutting rates to zero since it may discourage lending as bank profit margins would be cut dramatically. By the end of the day, UK gilt yields tumbled amidst prospects for lower interest rates, and with the odds increasing for additional rate cuts by the BOE, there is still potential for GBP/USD to break below noted support at 1.4150.

Related Articles: British Pound Weekly Trading Forecast,  Euro Weekly Trading Forecast

Japanese Yen Down as Carry Trade Gain, Threat of Risk Aversion Lingers Ahead of BOJ Rate Decision

As mentioned in the US dollar section, the Japanese yen ended Wednesday broadly lower, signaling at least a slight improvement in sentiment. However, event risk will pick up overnight, leaving the currency prone to volatility. The Bank of Japan is widely expected to leave rates unchanged overnight at 0.10 percent, but subsequent commentary will be watched closely for clues as to where the central bank thinks the economy and financial markets are headed next. As we saw on Sunday, the Japanese economy contracted in Q4 by the most since 1974 as exports fell a record 13.9 percent, and things are only expected to get worse. However, with few options available for dealing with the economy, the Japanese government and BOJ have been trying to grapple with liquidity issues. Currently, the BOJ is buying corporate debt and banking shares in an attempt to get them to lend, while the ruling Liberal Democratic Party proposed issuing zero-interest bonds last week in return in exchange for a cut to future inheritance taxes so that they can fund stimulus measures. Overall, the rate decision shouldn't be hugely market-moving, though extremely dour forecasts or signs of concerns about the appreciation of the Japanese yen could spur volatility.

Dollar turns lower on banking intervention concern
Dollar gives up earlier gains on market worry over US banking sector; gold soars past $1,000
Friday February 20, 2009, 4:25 pm EST


NEW YORK (AP) -- The dollar sagged in volatile late trading Friday amid a huge sell-off in U.S. bank stocks and talk about further drastic actions the government may take in the financial sector.


The 16-nation euro swung in a big range Friday, trading at $1.2841 late in New York, up from $1.2684 late Thursday. Earlier in the day, the euro fell as low as $1.2555 on continuing fears that financial chaos in Eastern Europe would hurt the broader region.

Meanwhile, the British pound rose to $1.4442 from $1.4302, while the dollar fell to 93.10 Japanese yen from 94.40 yen late Thursday.

Rumors swirled about the possible nationalization of Citigroup Inc. and Bank of America Corp., sending their shares plunging more than 20 percent in the early afternoon until White House press secretary Robert Gibbs reinforced that a "privately held banking system is the correct way to go."

Gibbs would not say directly, however, that President Barack Obama would never nationalize banks.

"There's a sudden increase of unknowns," said David Solin of Foreign Exchange Analytics in Essex, Connecticut, with investors abroad concerned about possible actions by the U.S. government in the banking sector this weekend.

Gold benefited from the uncertainty, soaring past $1,000 an ounce as investors sought safety in the precious metal.

Also helping the euro were media reports that Germany was working on possible rescue options for weaker members of the 16-member euro zone, said Ron Leven, currency strategist for Morgan Stanley in New York. German officials, however, have denied this.

And in Europe, European Central Bank President Jean-Claude Trichet told reporters at the European American Press Club in Paris that there are no countries that are a "weak link" in the euro zone.

"I consider that it is extremely important that each government is fully responsible for its own policies, and of course for its own fiscal policies particularly," Trichet said.

Marco Annunziata, chief economist at UniCredit, said that "Central and Eastern Europe has come under heavy fire from investors and commentators, triggering a sharp depreciation of currencies and a flurry of analyses and articles arguing that the region is doomed, set to collapse bringing Western Europe with it -- largely via the euro-zone's banking system."

In Mexico, meanwhile, the dollar hit a record 14.9822 Mexican pesos before closing at 14.7605 Friday from 14.6825 late Thursday.

The Mexican central bank cut interest rates by a quarter percentage point to 7.5 percent, the second cut this year. The bank auctioned off $121 million in foreign reserves to help support the peso. The country has sold off more than $15 billion in reserves to help prop up its currency, but the peso has lost more than 26 percent of its value in the past year.

In other late trading Friday, the dollar slid to 1.1548 Swiss francs from 1.1733 francs late Thursday, and dropped to 1.2484 Canadian dollars from 1.2555.

US Dollar Ends on Mixed Note as CPI Contracts for First Time Since 1955
Wednesday April 15, 2009, 5:26 pm EDT


Euro Loses Nearly 1% Against British Pound on Divergent ECB, BOE Rate Expectations

- Canadian Dollar the Strongest of the Majors, New Zealand Dollar Faces CPI on Thursday

- Japanese Yen Slips as DJIA Recovers 1.38%



US Dollar Ends on Mixed Note as CPI Contracts for First Time Since 1955

The US dollar remains mixed across the majors as the currency has broken lower against the Canadian dollar, but has generally held to well-defined ranges versus the euro and New Zealand dollar. When it comes to the US dollar index, it is clear that price remains in an uptrend, unless we see a drop below 84.00. The forex markets didn't show much of a response to this morning's release of the US consumer price index (CPI), despite the fact that the headline reading contracted for the first time since 1955 on an annualized basis. Indeed, CPI fell 0.1 percent in March, dragging the annualized rate down to -0.4 percent, as energy prices fell by 3 percent. However, excluding food and energy, core CPI actually rose 0.2 percent and the annualized rate held steady at 1.8 percent. All told, this should be somewhat comforting to the Federal Reserve, as the minutes from the Federal Open Market Committee's (FOMC) last meeting showed that "a few" members were concerned about deflation risks. Ultimately, we will need to see the core CPI results reflect similar declines to the headline readings before it can be said that the US is in the midst of deflation. That said, there is still the risk looming that it a protracted period of contracting prices will occur in late 2009 or 2010. The truth of the matter is that demand, especially for discretionary goods, is likely to fall much further as the unemployment rate climbs. In fact, the unemployment rate hit a more than 25-year high of 8.5 percent in March, and with initial and continuing jobless claims showing no signs of abating, the rate could ultimately breach the upper range of the FOMC's projections of 9.2 percent, and perhaps reach double-digits.

Looking ahead to Thursday, US housing starts and building permits are projected to reflect a steep drop in demand during March, which would mark a major reversal after starts surged 22.2 percent and permits rose 3.0 percent in February. Meanwhile, initial jobless claims are forecasted to have risen to 660k during the week ending April 11, while continuing jobless claim may have hit another record high of 5893k during the week ending April 4. Finally, the Philadelphia Fed's survey of manufacturing sector conditions is anticipated to have risen to -32 in April from -35, which would still mark a contraction in activity, albeit a less aggressive one.

Euro Loses Nearly 1% Against British Pound on Divergent ECB, BOE Rate Expectations

The euro generally ended the day lower on Wednesday, as the currency lost ground to majors like the US dollar, Australian dollar, British pound, and Canadian dollar. Meanwhile, the British pound was the second-strongest of the day, losing out only to the Canadian dollar. Once again, there really wasn't much in the way of fundamental news to drive price action for either the euro or British pound, but there were a few high-profile comments that have the potential to shape interest rate expectations for the European Central Bank (ECB). ECB Governing Council member Axel Weber said the bank needs to establish a floor for the benchmark lending rate, and has also indicated that he would prefer to not cut rates below 1 percent. Meanwhile, ECB Governing Council member Miguel Angel Fernandez Ordonez said that they could cut rates further, and that "it should not be forgotten that there are ways to use non-conventional measures" which they "are going to discuss this at the next board meeting." All told, these clues that the ECB will move to make monetary policy more accommodative in May adds to downside risks for the euro, especially against the British pound since the Bank of England has suggested they will leave rates at 0.50 percent going forward.

Looking ahead to Thursday's European event risk, Eurostat inflation estimates for the Euro-zone have shown that CPI may have fallen to a 0.6 percent annual pace during March, which would mark the lowest since recordkeeping began in 1991. More importantly, though, the data would highlight that inflation remains well below the ECB's 2.0 percent inflation target. If Eurostat confirms this at 5:00 ET, or revises the results to the downside, the euro could pull back sharply. On the other hand, if CPI is higher than anticipated, the currency could gain as the markets will speculate that the central bank may pause in their efforts to make monetary policy more accommodative.

Canadian Dollar the Strongest of the Majors, New Zealand Dollar Faces CPI on Thursday

The Canadian dollar beat out all of the majors on Wednesday, as the currency rallied 1.3 percent against the New Zealand dollar, Swiss franc, and Japanese yen. The currency also gained almost 1 percent versus the greenback as USD/CAD extended its bearish break from a multi-month triangle formation. The Australian dollar also held up fairly well, but the New Zealand dollar was hit hard and fell against every major currency, with the exception of the low-yielding Japanese yen and Swiss franc.

Pairs like NZD/USD could come under further pressure during the next 24 hours as New Zealand's consumer price index is forecasted to have risen 0.3 percent during Q1, which would bring the annual rate down to a more than one year low of 3.0 percent from 3.5 percent. During Q4 2008, prices contracted for the first time in two years and by the most in ten years, so unless we see another surprise contraction during Q1, the news may not add to speculation that the Reserve Bank of New Zealand will cut rates again during their next meeting on April 29. As it stands, a Bloomberg News poll of economists is reflecting expectations for a 50 basis point cut to 2.50 percent, while Credit Suisse overnight index swaps are forecasting a 25 basis point reduction to 2.75 percent. As a result, this upcoming inflation report could be highly market-moving for the New Zealand dollar, but if inflation pressures prove to be stronger than anticipated, the currency could rally.

Related Articles: New Zealand Dollar/US Dollar Monthly Forecast, US Dollar/Canadian Dollar Monthly Forecast

Japanese Yen Slips as DJIA Recovers 1.38%

Forex carry trades managed to recoup some of their losses on Wednesday, leaving the Japanese yen as the weakest of the majors. In fact, the low-yielding yen tumbled 1.40 percent versus the Canadian dollar and just over 1 percent against the British pound and Australian dollar. There are signs that the currency could appreciate in the near-term, though, as the latest FXCM SSI figures – a contrarian indicator - show that traders are net long USD/JPY. However, these moves will be contingent upon risk appetite remaining low, as a resurgence in Asian and European equities overnight could easily send carry trades higher once again.

Dollar mixed as consumer prices dip unexpectedly
Dollar mixed as consumer prices dip, inflation falling at fastest pace in half-century
Wednesday April 15, 2009, 5:08 pm EDT


NEW YORK (AP) -- The dollar advanced against the euro and yen but slipped versus the pound Wednesday after a report showed consumer prices falling at the fastest pace in more than a half-century.

The 16-nation currency bought $1.3191 in late New York trading, compared with $1.3293 Tuesday, while the British pound inched up to $1.4961 from $1.4940. The dollar rose to 99.20 Japanese yen from 98.85 yen.

The Labor Department said Wednesday that consumer prices edged down 0.1 percent last month. Over the past 12 months, consumer prices have fallen 0.4 percent, the first 12-month decline since a similar drop for the year ending in August 1955.

Meanwhile, the Federal Reserve said Wednesday its latest survey of business conditions nationwide found five of its 12 regional banks reported a moderation in the pace of the economic decline.

The Fed said several regions "saw signs that activity in some sectors was stabilizing at a low level ... (but) overall economic activity contracted further or remained weak."

In other late trading Wednesday, the dollar rose to 1.1441 Swiss francs from 1.1356, but slipped to 1.2072 Canadian dollars from 1.2128.

US Dollar Index...

The US Dollar Index displays a large rising wedge pattern. Breakout above short-term resistance at 86 indicates a swing to test the upper border, but the bearish formation warns that downward breakout is more likely in the long term. A weaker dollar would increase both crude oil and gold prices.

US Dollar Index...

The US Dollar Index is testing the lower border of a large rising wedge pattern after a false break above 86. The formation is bearish and breakout below 84 would warn of a primary down-swing with a target of 74, calculated as 84 - [88 - 78]. Recovery above 86, on the other hand, would signal a test of the upper border. A weaker dollar would increase both crude oil and gold prices.

Dollar Rallies as Demand for Safety Overrides Disappointing Retail Sales Data
On Wednesday May 13, 2009, 8:09 pm EDT


The entire currency market was working with high volatility Thursday; but it was the dollar that would see some of the most significant moves for price action.

EURUSD rallied once again to within sight of the March swing high at 1.3735 before plummeting. Against the pound, the greenback would produce a similar intraday reversal that would ultimately span 250 points. However, showing the true drive behind the market, the market's activity level would increase progressively with the pair's relation to risk appetite. The dollar saw its biggest advance come against the New Zealand, Australian and Canadian dollars (which were 2.3, 1.5 and 1 percent respectively). However, the pair that would confirm this was a shift in sentiment rather than a specific pick up in US economic prospects was the fourth consecutive decline in USDJPY, pulling it below 96.

Looking back over the past 24 hours, there were no all-consuming economic events to drive such a clear shift in risk appetite. So, where did the impetus for this broad move come from? Realistically, the tempering of risk appetite (and subsequent rise in the dollar's appeal) is an ongoing deflation of the optimism that has been artificially inflated over the past few months. Traders have been jumping into the higher risk pool of yield-bearing assets on the belief that sentiment will be able to sustain itself and that fundamentals will catch up in time to put a floor underneath the market before things started to fall apart. However, after last week's heavy dose of reality, there is reason to worry that sentiment may fall apart well before the eventual recovery ever picks up steam. From growth prospects, we are still dealing with the worst GDP numbers in a quarter of a century and unemployment threatening to top double digits. Fear could really take over should market stability come under pressure. Though the market's initial reaction to the Fed Stress Test results last week seemed to be that of relief; the possibility that the government was too accommodative in accounting for risk while not reasonably preparing for the impact of rising loan defaults has loomed over the market. Should there be any signs that banks are struggling to raise capital without government help, fear will be soon to follow.

Aside from the fickle path of sentiment, scheduled and unscheduled economic data was tempering speculation that the US would be the first major economy to see a true recovery. Topping the docket this morning, the Advanced Retail Sales report for April crossed the wires worse than expected with a 0.4 percent contraction. Dampening the market's reaction though, this decline is relatively modest when taken into historical context. More potent was the rise in foreclosures measured by RealtyTrac Inc. According to the company's statistics, defaults hit a record high for a second time in April with one in every 374 households going under. Forecasting the influence of fundamentals on volatility going forward, the US calendar is relatively light Thursday with jobless claims and producer prices the only notable indicators.

Big Dollar Weakens.......

US Dollar Index
The US Dollar Index completed a large rising wedge reversal pattern, indicating a primary down-swing. Failure of support at 83 confirms the signal and offers a target of 75, calculated as 85 - [88 - 78]. Reversal above 83, however, would warn of a false signal — and another test of 87.

US Dollar Index

The US Dollar Index broke through support at 83/82.50, to signal a primary down-trend, before retracing to test the new resistance level. Respect of resistance at 83 would confirm the down-trend, with a target of 79 calculated as 83 - [87 - 83]. Reversal above 83 is unlikely, but would warn of a bear trap — confirmed if the declining (red) trendline is penetrated. The weakening dollar is another bullish sign for gold.
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=48317)

Dollar falls on job losses, Britain's debt outlook
Dollar slides on persistent job losses, Britain's debt outlook lowered by Standard & Poor's
On Thursday May 21, 2009, 5:33 pm EDT


NEW YORK (AP) -- The dollar slid as the number of newly laid-off workers requesting unemployment insurance dropped slightly, while Standard & Poor's said Britain may have its rating cut because of rising debt levels.

The euro advanced to $1.3889 in late New York trading from $1.3807 late Wednesday, while the British pound rose to a 2009 high for the third day in a row at $1.5890. It recently traded at $1.5837, up from $1.5794.

Investors worried about how well governments can keep up with public spending to stimulate their economies after Standard & Poor's said Britain may have its rating cut because of rising debt levels. That would raise the cost of borrowing for the British government, which is taking a big role in bailing out that country's stricken banking system.

Though the ratings agency reaffirmed the country's actual long-term credit rating at "AAA" and its short-term rating at "A-1+," it said the outlook had deteriorated because of massive borrowing to deal with the recession and the banking crisis.

Because Britain is pursuing similar policies as the U.S., such as quantitative easing by the Bank of England and the Federal Reserve, the move triggered a sell-off of U.S. assets and the dollar, said David Gilmore of Foreign Exchange Analytics in Essex, Conn.

"The change in outlook for the U.K. was sort of a preview, perhaps, of what the S&P could come around to thinking about the U.S.," Gilmore said. "Both have similar imbalances such as large trade deficits, budget deficits and overall debt."

Meanwhile, the Labor Department said Thursday that initial claims for jobless benefits fell to a seasonally adjusted 631,000, down from a revised figure of 643,000 the previous week. That nearly matched analysts' expectations of 630,000 new claims.

The number of people continuing to claim unemployment insurance rose to nearly 6.7 million from about 6.6 million, the department said. That's the highest total on records dating to 1967 and the 16th straight record. The continuing claims data lags initial claims by one week.

"The labor market is still weak, but people are looking at signs of the economy's deterioration slowing and are more optimistic about a recovery towards the end of the year," Gilmore said.

Factory shutdowns by Chrysler LLC and General Motors Corp. likely will continue to inflate the claims figures until this summer, economists said. The shutdowns also could affect auto suppliers, which employ roughly 3 million workers.

GM said Thursday that it agreed to a tentative deal with the United Auto Workers union that would cut labor costs, close factories and change the way a union-run trust for retiree health care is funded.

In other late trading Thursday, the dollar rose to 1.1404 Canadian dollars from 1.1368 late Wednesday after Canada proposed new regulations aimed at protecting credit card users, a day after the U.S. Congress approved legislation that would make sweeping changes to the credit card industry.

The dollar slipped to 94.23 Japanese yen from 94.89 yen, and fell to 1.0936 Swiss francs from 1.0993 francs.

US Dollar Index...
The US Dollar Index pulled back to test the new resistance level. Respect of 83 confirms the primary down-trend and offers a target of the December low of 79, calculated as 83 - [ 87 - 83 ]. Reversal above 83 is most unlikely, but would warn of a bear trap.

Dollar Index Finds Target

US Dollar Index...
The US Dollar Index reached its target of 79 and is now retracing to test the upper trend channel at 80. Upward breakout would signal a secondary reaction to test resistance at 83. Narrow consolidation above support at 78.50 would warn of another primary down-swing.

US Dollar Gains as Treasury Yields - US Retail Sales Could Disappoint on Thursday
Wednesday June 10, 2009

• US Dollar Gains as Treasury Yields - US Retail Sales Could Disappoint on Thursday

• Euro, British Pound on Opposite Sides of the Spectrum as UK Industrial Production Rises

• Japanese Yen Tumbles Ahead of Final Q1 Japanese GDP Reading

• New Zealand Dollar Jumps on RBNZ Rate Decision, Australian Dollar Faces Employment Data Overnight



US Dollar Gains as Treasury Yields - US Retail Sales Could Disappoint on Thursday

The US dollar was generally strong on Wednesday, though the currency did fall against the Australian dollar and British pound, as Treasury prices plunged, sending yields higher. In fact, the yield on 10-year notes hit an intraday high of 3.99 percent, the highest since October 2008 after Bank of Russia first deputy chairman Alexei Ulyukayev said that they would switch some of their reserves from Treasuries to International Monetary Fund bonds. The comments echo those of China, which has said that it is "actively" considering buying as much as $50 billion of the IMF bonds, while Brazil's Finance Minister Guido Mantega said that they will purchase $10 billion worth of IMF bonds. Meanwhile, the Commerce Department said that the US trade deficit widened for the second straight month in April to $29.2 billion, while the Federal Reserve's Beige Book report showed that the twelve Federal Reserve District Banks saw that economic conditions "remained weak" or "deteriorated further" between mid-April and May. However, five of the Districts also said that the "downward trend is showing signs of moderating," adding to indications that the worst has passed for the US economy.

Looking ahead to Thursday, the Commerce Department is forecasted to report that US retail sales rose 0.5 percent in May after tumbling 0.4 percent in April, and excluding autos, retail sales are anticipated to increase by 0.2 percent. However, there is potential for a worse-than-expected result, as the latest ICSC chain store sales numbers show that consumption plunged by 4.6 percent in May from a year ago. The response of the US dollar to the results will be interesting as the currency finally responded to fundamental forces following the release of US non-farm payrolls for the month of May. Prior to that, risk trends had been the predominant driver of price action for the greenback, so this round of advance retail sales may serve as a good gauge of how strong risk links are in the FX market.

Related Articles: US Dollar Weekly Trading Forecast

Euro, British Pound on Opposite Sides of the Spectrum as UK Industrial Production Rises

The euro was extremely weak on Wednesday, losing against nearly every major currency, but on the other hand, the British pound dominated. There wasn't much in the way of European economic news, but according to the UK's Office for National Statistics (ONS), the nation's visible trade deficit widened to 7.003 billion pounds from 6.471 billion pounds during the month of April, as import growth outpaced a pickup in exports. At the same time, the ONS also said that industrial output rose by 0.3 percent during April, the first increase since February 2008 and the largest rise since October 2007. The improvement was due primarily to jump in mining and quarrying production, though the 0.2 percent increase in manufacturing output was notable in that it was the second consecutive positive result. That said, it's important to keep these moves in perspective, as the annual rate of industrial production remains deeply negative at -12.3 percent.

Related Article: Euro Weekly Trading Forecast, British Pound Weekly Trading Forecast

Japanese Yen Tumbles Ahead of Final Q1 Japanese GDP Reading

The Japanese yen was the weakest of the majors on Wednesday, tumbling more than 1 percent against the ultra-strong Australian dollar and British pound and falling 0.77 percent versus the US dollar. Most of the losses came during the Asian trading session though, as losses in the US equity markets subsequently pushed the Japanese yen higher. Tonight at 19:50 ET, Japan's Cabinet Office will release their final growth readings, which should confirm that the economy contracted for the fourth straight quarter in Q1 2009. However, this reading is anticipated to be revised higher once again, this time to -14.9 percent from -15.2 percent. While this would still be the worst result on record, the revision has potential to provide a boost to the Japanese yen, which is what we saw with the release of the preliminary reading on May 19. On the other hand, a revision to the downside could weigh heavily on the low-yielding currency.

New Zealand Dollar Jumps on RBNZ Rate Decision, Australian Dollar Faces Employment Data Overnight

The Reserve Bank of New Zealand (RBNZ) left their Official Cash Rate target unchanged at 2.50 percent, as expected, citing evidence that "international economic activity is stabilizing and international financial conditions are improving." RBNZ Governor Alan Bollard was somewhat optimistic in his post-meeting policy statement, saying that "for the first time in some months," there were "clear upside opportunities for activity." However, these comments were generally the sole confident notes as Bollard also noted downside risks to activity and inflation, with the appreciation of the New Zealand dollar creating an "unhelpful tension" with their projections. That said, Bollard wrote off the need to intervene in the FX markets, saying that neither intervention nor a rate cut would impact the currency. Going forward, the RBNZ has left the door open to "modest" reductions "in coming quarters" as they reiterated their previous statement that they "expect to keep the OCR at or below the current level through until the latter part of 2010." Keeping this in mind, the New Zealand dollar's initial rally in response to this policy decision could ultimately prove to be short-lived.

The Australian dollar gained on Wednesday, especially against the low-yielding Japanese yen, but the currency faces event risk overnight. The Australian labor markets started to deteriorate during the second half of 2008, and data may show that this is continuing through 2009. While we did see a surprise improvement in April, the May results are projected to show that the unemployment rate rose back up to 5.7 percent from 5.4 percent while the net employment change is anticipated to fall by 30,000. The latter report tends to have a greater impact on the Aussie since the figure rarely meets expectations and can lead to volatile short-term price action for the Australian dollar immediately following the news at 21:30 EDT.

US Dollar Index
A weakening dollar increases demand for gold. The US Dollar Index is in a primary down-trend — currently retracing to test the upper border of the trend channel at 82. Breakout is unlikely, but would warn of trend weakness. Respect of the upper channel would indicate another primary down-swing with a target of 73 — calculated as 78 - [ 83 - 78 ].

US Dollar Index...
A weakening dollar increases demand for gold. The US Dollar Index is consolidating in a narrow range between 79.50 and 81. Downward breakout is more likely and would indicate a primary down-swing with a target of 73; calculated as 78 - [ 83 - 78 ]. Breakout above 81, however, would indicate that the primary trend is slowing — and test resistance at the March low of 83.

US Dollar Index
A down-turn in the US Dollar Index would also boost precious metal prices. Breakout from the narrow consolidation between 79.50 and 81 will test primary support at 78.50. Failure of support would warn of another primary decline, targeting the lower channel border. Recovery above 81 is most unlikely, but would signal a test of the March low at 83.

US Dollar Index
The US Dollar Index continues to encounter resistance around 83.5. Expect retracement to test support at 80. Failure of support would signal a decline to 76.5, while respect of support would indicate a rally to test 89. The (bull) signal would be strengthened if 63-day Twiggs Momentum forms another trough above zero.
Target calculation: 80 - ( 83.5 - 80 ) = 76.5

Today's Market Focus.......

•   December 10-year T-notes this morning are trading down -13.5 ticks. Dec 10-year T-note prices yesterday moved higher for a second day and closed up +11 ticks at 125-200. Bullish factors included (1) the larger-than-expected decline in the Aug Chicago purchasing managers index which fell to a 9-month low (-5.6 to 56.7 versus expectations of -5.3 to 57.0), (2) the prediction from PIMCO, the manager of the world's biggest bond-fund, that the Fed's action to boost the economy are insufficient, given a "frozen" housing market, slow growth, high unemployment and significant debt, (3) the Aug 10 FOMC meeting minutes in which policy makers said they saw "increased downside risks to the outlook for both growth and inflation" and voiced concern that further shocks would cause "significant slowing in growth," and (4) month-end buying of Treasuries by hedge funds and portfolio managers who need to buy newly issued Treasuries (i.e., Aug refunding o f 10-year T-notes) in order to rebalance their portfolios to match changes in bond indexes with which they are benchmarked. Bearish factors included (1) the larger-than-expected increase in the Jun S&P Case-Shiller composite-20 home price index (+0.3% m/m and +4.2% y/y versus expectations of +0.2% m/m and +3.6% y/y), (2) the larger-than-expected increase in Aug US consumer confidence (+2.5 to 53.5 versus expectations of +0.3 to 50.7), and (3) reduced safe-haven demand for Treasuries after the stock market rallied.
•   The dollar index this morning is weaker and posted a 1-1/2 week low in overnight trade with the dollar/yen -0.16 yen and the euro/dollar +1.24 cents. The dollar index yesterday finished slightly higher. Bullish factors included (1) the Aug Euro-Zone unemployment rate holding at a 12-year high of 10.0% for the fifth consecutive month, its highest level in 12 years, which was euro-negative, (2) the Aug 10 FOMC meeting minutes in which policy makers signaled no plans to resume large-scale asset purchases, and (3) an increase in the safe-haven demand for the dollar after the FDIC reported that US "problem" banks rose to 829 at the end of Q2, up +7% from 775 at the end of Q1. Bearish factors included (1) reduced safe-haven demand for the dollar after the stock market rallied, (2) strength in the yen on speculation the action taken on Monday by the BOJ and the Japanese government to halt the yen's strength and boost economic growth will be insufficient, and (3) eu ro-positive comments from Standard & Poor's that the risk of a renewed recession in Europe is "remote."
•   October crude oil prices this morning are trading up +64 cents a barrel and October gasoline is +1.71 cents per gallon. Oct crude oil prices yesterday tumbled after mid-morning and closed down -$2.78 a barrel. Oct gasoline closed lower by -5.04 cents per gallon. Bearish factors included (1) the larger-than-expected decline in the Aug Chicago purchasing managers index which fell to its lowest level in 9 months and signals the economic recovery and energy demand may be cooling, and (2) the outlook for weekly US crude supplies to increase when the DOE releases its inventory report on Wed. Bullish factors included (1) the weaker dollar, (2) the better-than-expected Aug US consumer confidence, (3) the larger-than-expected increase in home prices in the Jun S&P Case-Shiller home price index, and (4) the prediction from DnB Nor ASA that crude oil prices will be supported at $70 a barrel for another year as the cost of oil production in deeper water rises and fears of a double-dip recession ease. Expectations for Wednesday's weekly DOE inventory report are for crude oil stockpiles to rise +1.3 million bbl, gasoline supplies to fall -375,000 bbl, distillate inventories to gain 1.1 million bbl and the refinery capacity rate to remain unchanged at 87.7%.

US Dollar Index...

The US Dollar Index is retracing to test support after encountering resistance at 83.5. Failure of support at 80 would signal a decline to 76.5*, while recovery above 83.5 would indicate a rally to 89. Respect of the zero line by 63-day Twiggs Momentum would strengthen the bull signal.

Target calculation: 80 - ( 83.5 - 80 ) = 76.5

US Dollar Index...

The US Dollar Index is consolidating below resistance at 83.5. Downward breakout would test support at 80, while upward breakout would test 89. Reversal below zero by 63-day Twiggs Momentum would warn of a primary decline to 76.5*; respect of the zero line, on the other hand, would strengthen the bull signal.

Target calculation: 80 - ( 83.5 - 80 ) = 76.5

US Dollar Index...

The US Dollar Index is headed for a test of primary support at 80; failure would signal a decline to 77*. Reversal above 83.5 is unlikely, but indicate an advance to 89. Respect of zero by 63-day Twiggs Momentum favors continuation of the primary down-trend.

Target calculation: 80 - ( 83 - 80 ) = 77

US Dollar Index...
Dollar plunge causes gold surge
The US Dollar Index broke through primary support at 80, signaling a decline with an initial target of 77*. The sharp fall of 63-day Twiggs Momentum below the zero line strengthens the bear signal. The falling dollar is expected to cause a general rise in precious metals, crude oil and currency crosses.

Target calculation: 80 - ( 83 - 80 ) = 77

US Dollar Index...
The US Dollar Index is declining towards its target of 76.50* after a brief retracement to test the new resistance level at 80. Respect of the zero line by 21-day Twiggs Momentum signals a strong down-trend.

Target calculation: 80 - ( 83.50 - 80 ) = 76.50

Currency Manipulation...
The US House of Representatives passed legislation allowing, but not requiring, the U.S. to levy tariffs on countries that undervalue their currencies (WSJ). This is dangerous ground as imposition of trade tariffs to protect local industries is widely believed to have harmed international trade and increased the severity of the Great Depression in the 1930s. It would be wise to avoid a repeat.

A better alternative may be to isolate flows on the capital account, which are used by trading partners such as Japan and China to manipulate the strength of the US dollar through purchases of US Treasurys, and to deal with these separately to normal trade flows. Steps could then be taken to ensure that capital flows are managed to deter currency manipulators. Either by insisting on reciprocity or levying some form of penalty to discourage further purchases.

Mass exodus of capital may be seen as a potential threat, driving up long-term interest rates and the cost of servicing Treasury debt, but this may prove to be a paper tiger. The resultant fall in the US dollar would stimulate exports and restrict imports, boosting the US economy at the expense of the manipulators. What goes around comes around.

US Dollar Index...

The US Dollar Index is testing support at 76.5; failure would test the 2009 low of 74.5. Twiggs Momentum (21-day) below its August low, after respecting the zero line, confirms a strong down-trend.

* Target calculation: 80 - ( 83.50 - 80 ) = 76.50

Dollar climbs amid questions about Fed program...

NEW YORK (AP) — The dollar strengthened Wednesday after concerns grew that the Federal Reserve's plans to buy Treasurys might be smaller and slower than traders anticipated.

Traders have been expecting that the Fed will announce a plan next week to swiftly buy U.S. Treasurys, with some estimating the purchases could top $1 trillion. However a report Wednesday in the Wall Street Journal said the bond-buying program could be smaller and stretched out over more months than expected.

Smaller and slower purchases helped the dollar regain some of its value Wednesday compared with the euro and Japan's yen. It was the second straight day the dollar rallied against the currencies.

The dollar had been hammered in recent weeks as investors expected the U.S. central bank to start buying government-backed bonds. The purchases are aimed at driving bond yields and interest rates lower. The lower yields make other currencies and investments more attractive than Treasurys and the dollar.

The euro bought $1.3761 in late trading in New York Wednesday, down from $1.3850 late Tuesday. The British pound fell to $1.5758 from $1.5835 against the dollar.

The dollar rose to 81.71 yen, compared with 81.49 a day ago.

The dollar also rose to 1.0298 Canadian dollars from 1.0246 Canadian dollars, and moved up to 0.9917 Swiss francs from 0.9861 Swiss francs.

Will the Fed go ahead?


The G-20 meeting of finance ministers failed to produce any firm, enforcable targets. The current status quo is likely to continue for the foreseeable future, with China and other net exporters accumulating forex reserves in order to suppress the value of their currencies. Expect the greenback to weaken further, however, if the Fed goes ahead with plans to introduce more quantitative easing (QE2) at its November 3 meeting.


US Dollar Index...

The US Dollar Index retracement found support at 77. Breakout above 78.5 would signal a secondary rally to test resistance at 80. Rising Twiggs Momentum (21-day) indicates a correction, but respect of the zero line (from below) would warn of another primary decline — as would respect of resistance at 78.5 on the price chart.

* Target calculation: 80 - ( 83.50 - 80 ) = 76.50

US Dollar Index...

The US Dollar Index broke support at 76.5, offering a short-term target of 74.5*. Respect of the declining trendline by Twiggs Momentum (21-day) would warn of a strong primary decline.

* Target calculation: 78.5 - ( 78.5 - 76.5 ) = 74.5

Wednesday, November 10, 2010...

The dollar index this morning is trading higher with the dollar/yen +0.60 yen and the euro/dollar -0.18 cents. The dollar index yesterday traded weaker early but rebounded mid-morning to a 1-week high and stayed higher the rest of the day and finished with modest gains: Dollar Index +0.416, USDJPY +0.497, EURUSD -0.01478.

Bullish factors for the dollar included (1) weakness in the euro which fell to a 1-week low against the dollar on increased European sovereign-debt risks after the yield spread between Irish 10-year bonds and similar-maturity benchmark German bunds widened to a record 554 bp and the yield spread between Portuguese 10-year bonds and bunds widened to a record 452 bp, and (2) the recommendation from Standard Bank Plc for investors to sell the euro against the dollar on expectations the euro will weaken to $1.3450 shortly from $1.3900 today.

Bearish factors for the dollar included (1) strength in the yen after China said it will introduce new rules on cu rrency provisioning and tighten management of banks' foreign-debt quotas in order to curb capital flows into its economy, and (2) the unexpected increase in the Oct Bank of France business sentiment which unexpectedly rose +1 to a 2-1/2 year high of 103 and is euro positive.

Thursday, November 11, 2010...

The dollar index this morning is trading higher with the dollar/yen -0.01 yen and the euro/dollar -0.75 cents. The dollar index yesterday moved up to a 2-week high and finished higher on increased safe-haven demand for the dollar when the euro tumbled on heightened sovereign-debt risk concerns: Dollar Index +0.191, USDJPY +0.580, EURUSD +0.00101. The yen fell to a 1-month low against the dollar.
                Bullish factors for the dollar included (1) the slump in the euro to a 1-month low against the dollar after the yield spread between Irish 10-year bonds and similar-maturity German bunds widened to a record 622 bp along with weak demand for a Portuguese bond auction that had a bid-to-cover ratio of 2.1, down from 4.9 at a sale in Sep, (2) the surge in the yield on the 10-year T-note to a 1-3/4 month high, which makes dollar-denominated assets more attractive to international investors, and (3) the narrower-than-expected Sep US trade balance, which is dollar bullish.
                Bearish factors for the dollar included (1) comments from Brazil's Finance Minister who said the Group of 20 nations may discuss at their meeting later this week reducing the dollar's role as a reserve currency in favor of a basket that could include the real and the yuan, and (2) strength in the Chinese yuan which rose to 6.6395 against the dollar, the strongest level since China unified official and market exchange rates at the end of 1993.

US Dollar Index...

The US Dollar Index rallied off support at 76, but is now encountering resistance at 78.5. Breakout would test 80, while reversal below 76 would offer a medium-term target of 73.5*. Penetration of the declining trendline by Twiggs Momentum (21-day) favors a rally, but respect of the zero line would confirm the primary down-trend.

* Target calculation: 76 - ( 78.5 - 76 ) = 73.5

Friday, November 12, 2010...

•   The dollar index this morning is trading higher and at a 5-week high with the dollar/yen -0.36 yen and the euro/dollar +0.46 cents. The dollar index yesterday rallied to a 2-week high and finished near its high on increased safe-haven demand as the euro weakened due to heightened sovereign-debt risk concerns: Dollar Index +0.191, USDJPY +0.580, EURUSD +0.00101.
                Bullish factors for the dollar included (1) the slump in the euro to a 5-week low against the dollar after Ireland's central bank Governor and ECB Council member Honohan said Irish and international banks' loan losses in his country may total at least 85 billion euros ($117 billion), and (2) comments from French Finance Minister Lagarde who said "investors must share the cost of sovereign debt restructurings," which boosted the safe-haven demand for the dollar on concern some Euro-Zone nations may need to restructure their debt in order to avoid defaulting.
                Bearish factors for the dollar included (1) the ECB's monthly report in which the central bank raised its 2010 Euro-Zone GDP forecast to 1.6% from a 1.1% estimate made 3 months ago and raised its 2011 GDP forecast to 1.5% from 1.4%, and (2) comments from ECB Executive Board member Gonzalez-Paramo who said he doesn't rule out higher interest rates in the "medium term" if signs of inflationary pressures appear.

November 10, 2010...
G-20 Will Play Into Dollar's Hands

The U.S. looks set to get just what it doesn't want — a strong dollar.

By introducing more quantitative easing last week, the Federal Reserve might well have been hoping for a further decline in the U.S. currency to help boost the economic recovery alongside the increased monetary kick that a $600 billion dose of bond buying will give.

Instead, the Fed's move has raised the ire of its major global competitors and essentially blown the prospect of a negotiated solution to current account imbalances at the upcoming summit of the Group of 20 industrialized and developing nations in Seoul.

This resumption of the status quo will only help the dollar as the risk of competitive devaluations returns and a slump in risk appetite sends investors scurrying back into safe havens.

The irony is that the need for an adjustment to the imbalances is becoming even more acute than ever.

The latest trade figures from Beijing showed that while China shipped $25 billion of goods into the U.S. last month, the U.S. managed to send only $7 billion of exports to China.

Nevertheless, a draft of the statement that leaders are expected to issue after the G-20 summit is said to mention neither the words 'foreign exchange' nor 'imbalances'.

G-20 sources also said the final communique won't include any numerical targets, despite U.S. proposals that G-20 should place a limit on current account surpluses.

A measure of just how isolated the U.S. is on the whole issue came from the wording in a report Tuesday from China's Dagong Global Credit Rating Company when it downgraded U.S. sovereign debt to A+ from AA.

"It is likely that an overall crisis might be triggered by the U.S. government's policy to continuously depreciate the U.S. dollar against the will of its creditors."

Of course, this fierce criticism helps to reduce the chances of any more QE out of the Fed in the future and contribute to dollar strength.

But, as investors prepare for an uneventful G-20, they will have another good reason to start buying the dollar again–the increased risk that Asian economies will once again resort to competitive currency devaluations in an effort to ensure that a weak dollar doesn't undermine their own export recovery.

They will certainly remain sensitive to the hot money inflows that have tended to drive their currencies higher, eventually resorting once again to capital controls, verbal as well as market intervention that will only boost global market uncertainty and make the dollar's safe haven status even more attractive.

Monday, 15 November 2010...


•The dollar index this morning is trading higher and posted a 1-1/4 monthhigh in overnight trade with the dollar/yen +0.45 yen and the euro/dollar -0.55 cents. The dollar index last Friday pushed up to a 5-week high early but erased its gains and finished lower on speculation that European leaders will support Ireland and other indebted Euro-Zone nations: Dollar Index -0.135, USDJPY -0.050, EURUSD +0.00240.
                Bearish factors for the dollar included (1) the statement from European finance ministers that attended the G-20 summit in South Korea who said a crisis-resolution mechanism they are contemplating won't force bondholders of indebted Euro-Zone nations to share bailout costs, which lifted the euro off of a 1-1/4 month low against the dollar, and (2) reduced safe-haven demand for the dollar after Ireland's Finance Ministry said "there are no talks on an application for emergency funding from the European Union."
                Bullish factors for the dollar included (1) the downward revision to the Q3 GDP growth rates of Germany, France, and the Euro-Zone, which is euro negative, and (2) the unexpected drop in Sep Euro-Zone industrial production, which posted its steepest decline in 18 months.

Tuesday, November 16, 2010...

•   The dollar index this morning is trading higher and at a 1-1/2 month high with the dollar/yen +0.09 yen and the euro/dollar +0.27 cents. The dollar index yesterday strengthened on increased safe-haven demand due to concern some European countries will struggle to repay debt along with a jump in US Treasury yields, which boosted the dollar's interest rate differentials: Dollar Index +0.436, USDJPY +0.034, EURUSD -0.00081. The dollar index climbed to a 1-1/4 month high, the yen fell to a 1-1/4 month low, and the euro dropped to a 1-1/2 month low.
               
                Bullish factors for the dollar included (1) an escalation in European sovereign-debt fears which weakened the euro after Greece's 2009 budget deficit was revised up to 15.4% of GDP from 13.6%, the largest in the Euro-Zone, along with concerns that Ireland may need a bailout, (2) the biggest increase in Oct US retail sales since March, which signals an expanding US economy, and (3) the jump in the yield on the 10-year T-note to a 3-1/4 month high of 2.90%, which improves the dollar's interest rate differentials
               
                Bearish factors for the dollar included (1) the contraction in the Nov Empire manufacturing index to its slowest level in 19 months, which may point to a slowdown in the US economy, and (2) comments from Jean-Claude Juncker, leader of the Euro-Zone finance ministers, who said Ireland is "not near the point" of asking for aid.

Wednesday, November 17, 2010...


•   The dollar index this morning is trading higher with the dollar/yen +0.19 yen and the euro/dollar -0.06 cents. The dollar index yesterday moved higher on stronger-than-expected foreign demand for dollar assets along with increased safe-haven demand for dollars due to a weak stock market and European sovereign-debt risks: Dollar Index +0.692, USDJPY +0.218, EURUSD -0.00966. The dollar index rallied up to a 1-1/2 month high, the yen fell to a 1-1/4 month low, and the euro dropped to a 1-1/2 month low.

                Bullish factors for the dollar included (1) the larger-than-expected increase in the Sep net long-term TIC flows, which indicates strong foreign demand for US dollar assets, (2) comments from Moody's Investors Service that the Aaa credit rating of the US won't be under pressure this year or next due to record budget deficits, and (3) increased safe-haven demand for dollars due to the slide in the stock market and the ongoing European sovereign-debt crisis.

                Bearish factors for the dollar included (1) the larger-than-expected increase in the Nov German ZEW economic sentiment survey, which is euro bullish, and (2) the action by the IMF to boost the euro's weighting in its Special Drawing Rights (SDR) valuation basket of currencies to 37.4% from 34% and the reduction in the dollar's weighting in the SDR basket to 41.9% from 44%.

Thursday, November 18, 2010...


•   The dollar index this morning is trading lower with the dollar/yen +0.13 yen and the euro/dollar +1.24 cents. The dollar index yesterday erased an early rally and closed lower after weaker-than-expected US economic data reinforced speculation the Fed will follow through on its $600 billion asset purchase plan and potentially debase the dollar: Dollar Index -0.126, USDJPY -0.060, EURUSD +0.0033.

                Bearish factors for the dollar included (1) the smallest year-over-year increase in Oct core CPI (+0.6% y/y) since records began in 1958, which fueled deflation concerns, and (2) the larger-than-expected fall in Oct US housing starts to a 1-1/2 year low, which signals a weakening economy that will allow the Fed to continue its quantitative easing program.

                Bullish factors for the dollar included (1) concerns that Ireland may yet need a bailout to avoid defaulting on its debt, and (2) comments from Atlanta Fed President Lockhart who said the effect of Fed's program to buy $600 billion in Treasuries will be "measured" and are not intended to weaken the dollar or monetize the debt.

Friday, November 19, 2010...


•   The dollar index this morning is trading lower with the dollar/yen -0.14 yen and the euro/dollar +0.57 cents. The dollar index yesterday weakened on optimism that a bailout for Ireland was near: Dollar Index -0.467, USDJPY +0.276, EURUSD +0.01184.

                Bearish factors for the dollar included (1) a rally in the euro after Irish central bank Governor Honohan said he expects his country to ask for a "substantial" bailout from the EU and the IMF to rescue its debt-laden banks, and (2) the prediction from JPMorgan Chase that the dollar may fall below 74 yen next year as it becomes the world's "weakest currency" due to the Fed's monetary-easing program.

                Bullish factors for the dollar included (1) the rise in Treasury yields which boosts the dollar's interest-rate differentials, and (2) the better-than-expected Nov Philadelphia Fed manufacturing index, which may prompt the Fed not to purchase the full $600 billion allotment of Treasuries in its QE 2 program.

Monday, November 22, 2010...


•   The dollar index this morning is trading lower with the dollar/yen -0.02 yen and the euro/dollar +0.07 cents. The dollar index last Friday settled slightly lower as the euro gained on speculation Ireland will get a bailout and prevent Europe's debt crisis from worsening: Dollar Index -0.113, USDJPY -0.040, EURUSD +0.00436.

                Bearish factors for the dollar included (1) strength in the euro on optimism that a bailout of Ireland's banks will prevent the European sovereign-debt crisis from worsening, and (2) comments from Bundesbank President and ECB Council member Weber who said the ECB's bond purchases should be stopped "sooner rather than later."
               
                Bullish factors for the dollar included (1) increased safe-haven demand for the dollar on the weak stock market along with concern that the action by China to raise its banks' reserve ratio requirements will slow the Chinese economy and the global economy as well, and (2) comments from IMF Managing Director Dominique S trauss-Kahn which boosted the safe-haven demand for the dollar when he said "the European sovereign-debt crisis is not over."

Tuesday, 23 November 2010...


•The dollar index this morning is trading higher with the dollar/yen +0.09 yen and the euro/dollar -0.83 cents. The dollar index yesterday erased overnight losses and finished higher on concern the European sovereign-debt crisis may worsen: Dollar Index +0.125, USDJPY -0.149, EURUSD +0.0057.

                Bullish factors for the dollar included (1) weakness in the euro which fell from a 1-week high against the dollar and settled lower after Moody's Investors Service said that loans to Ireland from the EU and the IMF may increase the country's debt burden and pose a "credit negative" for Ireland, (2) increased safe-haven demand for the dollar as European and US stock markets slumped on concern that the European sovereign-debt crisis may be spreading after credit-default swaps on Portuguese government debt jumped 29.5 bp to a 1-week high of 447 bp, and (3) the prediction from High Frequency Economics Ltd. that parts of Greece's government may be forced to "shut down" as early as next week if the country isn't able to recover a revenue shortfall caused after some EU members delayed their next payments of aid money.

                Bearish factors for the dollar included (1) an early rally in the euro to a 1-week high against the dollar on optimism that a bailout of Ireland would stop the spread of the European sovereign-debt crisis, and (2) comments from European Economic and Monetary Commissioner Rehn who said the euro is close to its "fundamental value."

Wednesday, November 24, 2010...

•   The dollar index this morning is trading at a 2-month high with the dollar/yen +0.18 yen and the euro/dollar -0.12 cents. The action by Standard & Poor's to cut Ireland's debt rating along with fears of contagion in the European debt crisis has boosted the dollar overnight and sent the euro tumbling to a 2-month low. The dollar index yesterday rallied sharply on increased safe-haven demand after North and South Korea exchanged artillery fire and after the euro sank on concerns the European sovereign-debt crisis may spread: Dollar Index +0.999, USDJPY -0.171, EURUSD -0.02597. The dollar index climbed to a 1-3/4 month high and the euro dropped to a 2-month low against the dollar.

                Bullish factors for the dollar included (1) the slump in the euro to a 2-month low on concern the European debt crisis may spread to Portugal and Spain and after German Chancellor Merkel said the euro is in an "exceptionally serious" situation, (2) increased safe-haven demand for the dollar after North and South Korea exchanged artillery fire, and (3) the action by Irish Prime Minister Cowen to say he will call for national elections early next year, which fuels concern that any agreement on a bailout may not be upheld by a new Irish government.

                Bearish factors for the dollar included (1) the unexpected increase in the Nov Euro-Zone PMI composite index, which is euro positive, and (2) comments from ECB Executive Board member Tumpel-Gugerell who said that ECB lending to European banks has declined, which will allow it to exit some of its emergency funding measures.

Friday, November 26, 2010...


•   The dollar index this morning is trading at a 2-month high with the dollar/yen +0.28 yen and the euro/dollar -1.26 cents. The euro slumped to a 2-month low in overnight trade as European sovereign-debt risks mount. The dollar index Wednesday rallied up to a 2-month high early in the session sharply on the action by Standard & Poor's to cut Ireland's debt rating along with fears of contagion in the European debt crisis but erased most its gains and closed slightly higher on reduced safe-haven demand after the stock market rallied sharply on improved US economic data: Dollar Index +0.186, USDJPY +0.380, EURUSD -0.00323.

                Bullish factors for the dollar included (1) the action by Standard & Poor's to cut Ireland's long-term sovereign debt rating to A from AA- and its short-term rating to A-1 from A-1+ with a negative outlook as it cited concern about additional borrowing by the government, and (2) weakness in the euro which slumped to a 2-month low against the doll ar on concern that contagion of the European sovereign-debt crisis has begun after credit-default swaps that insure Portugal's and Spain's government debt both surged to record highs.

                Bearish factors for the dollar included (1) the improvement in the Nov US University of Michigan confidence to a 5-month high and the drop in weekly jobless claims to their lowest level in 2-1/4 years, which fueled a stock market rally that reduced the safe-haven demand for the dollar, (2) the unexpected increase in the Nov German IFO business climate to its highest level since data began in 1991 (+1.6 to 109.3), and (3) the temporary rebound in the euro from a 2-month low after Ireland's government said it will cut spending by 20% and raise taxes over the next 4 years to curb its budget deficit.

Monday, November 29, 2010...

•   The dollar index this morning is mildly higher by +0.26 points with the dollar/yen up 0.09 yen and the euro/dollar down 0.91 cents. The dollar continues to see support from technical buying and optimism about the improvement in US economic data. The dollar index last Friday rallied to a 2-month high on tensions over South Korea and the European debt crisis: Dollar Index +0.490, USDJPY +0.580, EURUSD -0.0094.

                Bullish factors for the dollar included (1) increased safe-haven demand for the dollar after North Korea's state-run news agency said planned naval exercises by South Korea and the US moved the Korean peninsula "closer to the brink of war," (2) the slump in the euro to a 2-month low against the dollar on concern the European debt crisis is worsening after credit-default swaps to insure Spain's, Portugal's and Ireland's government debt rose to record highs, (3) euro negative comments from ECB Council member Liikanen who said that the ECB might keep emerg ency liquidity measures in place for longer "if required," and (4) the weaker-than-expected Oct French consumer spending.

Tuesday, November 30, 2010...

•   The dollar index this morning is trading highr and at a 2-1/4 month high with the dollar/yen -0.43 yen and the euro/dollar -1.09 cents as concerns over the widening of the European debt crisis boosts the safe-haven demand for the dollar. The dollar index yesterday strengthened throughout the day on increased safe-haven demand due to concern that the European sovereign-debt crisis will broaden: Dollar Index +0.478, USDJPY +0.153, EURUSD -0.0121. The euro fell to a 2-1/4 month low against the dollar and the yen slumped to a 2-month low.

                Bullish factors for the dollar included (1) the slump in the euro to a 2-1/4 month low against the dollar on concern the European debt crisis will spread to Spain and Portugal after credit-default swaps to insure Spain's and Portugal's government debt rose to record highs, and (2) a report from the European Commission that predicts GDP growth in the Euro-Zone next year will fall to 1.5% from 1.7% this year as budget cuts to stem the debt crisis hurt consumer demand.

                Bearish factors for the dollar include the larger than expected increase in the Nov Euro-Zone economic confidence which rose to a 3-year high and is euro positive, and (2) comments from EU Economic and Monetary Affairs Commissioner Rehn who said the Euro-Zone economy faces an "upside risk" from the strength in the recovery in Germany.

Wednesday, December 1, 2010...

•   The dollar index this morning is trading weaker with the dollar/yen +0.12 yen and the euro/dollar +1.25 cents. The dollar index yesterday rallied for a third day on concern that the European sovereign-debt crisis may widen: Dollar Index +0.360, USDJPY -0.576, EURUSD -0.01461. The dollar index climbed to a 2-1/4 month high and the euro slid to a 2-1/2 month low against the dollar.

                Bullish factors for the dollar included (1) the slump in the euro to a 2-1/2 month low against the dollar on concern over contagion of the European sovereign-debt crisis after credit-default swaps insuring Italian, Spanish and Portuguese government bonds all rose to record highs, (2) the +0.1 point increase in the Oct Euro-Zone unemployment rate to a 12-year high of 10.1%, which is euro negative, and (3) the larger-than-expected increase in Nov US consumer confidence to a 5-month high along with the unexpected increase in the Nov Chicago purchasing managers index to a 7-month high, which sugg ests strength in the US economy.

                Bearish factors for the dollar include (1) comments from ECB President Trichet who said the Euro-Zone economy is growing "better than forecast" and that the EU's resolve on the euro "shouldn't be underestimated," and (2) comments from IMF First Deputy Managing Director Lipsky who said the euro has a "solid" value and any notion that the currency was under threat was "wildly exaggerated."

Thursday, December 2, 2010...

•   The dollar index this morning is trading lower with the dollar/yen +0.01 yen and the euro/dollar +0.25 cents. The dollar index yesterday weakened on speculation the US would support more IMF aid for the European sovereign-debt crisis and on reduced safe-haven demand after global stock markets rallied sharply: Dollar Index -0.482, USDJPY +0.500, EURUSD +0.01558.

                Bearish factors for the dollar included (1) strength in the euro on speculation the ECB at its monthly meeting Thursday may indicate further measures to curb the spread of the debt crisis, (2) a report from Reuters that cited an unidentified US official who said the US would support increasing the size of the EU's rescue fund through the commitment of more money from the IMF, and (3) comments from Richmond Fed President Lacker who said he's "not sure" if monetary tightening is around the corner and he doesn't see "high odds" of tightening next year.

                The main bullish factor for the dollar yesterday was stronger-than-expected US economic data on Nov ISM manufacturing and Nov ADP employment, which signals strength in the US economy.

Friday, December 3, 2010...


•   The dollar index this morning is trading lower with the dollar/yen -0.20 yen and the euro/dollar +0.55 cents. The dollar index yesterday moved lower for a second day on reduced safe-haven demand after Oct US pending home sales unexpectedly rose and the stock market rallied: Dollar Index -0.410, USDJPY -0.387, EURUSD +0.00686.

                Bearish factors for the dollar included (1) the unexpected surge in Oct US pending home sales which rose to a record, and (2) the rally in the S&P 500 to a 3-week high, which reduced the safe-haven demand for the dollar.

                Bullish factors included (1) early weakness in the euro after ECB President Trichet said the ECB will delay its withdrawal of emergency liquidity measures to combat "acute" market tensions and disappointment that the ECB signaled no further new measures to stem the debt crisis, and (2) the surge in Treasury yields to a 4-month high, which improves the dollar's interest rate differentials.

Monday, December 6, 2010...

•   The dollar index this morning is trading higher with the dollar/yen +0.29 yen and the euro/dollar -1.13 cents. The dollar index last Friday plummeted to a 1-1/2 week low following the weak Nov US payrolls report and finished the day sharply lower: Dollar Index -0.926, USDJPY -1.097, EURUSD +0.0204.

                Bearish factors for the dollar included (1) the smaller-than-expected increase in Nov nonfarm payrolls along with the unexpected increase in the US unemployment rate to a 7-month high of 9.8%, which fuels speculation that the economic recovery is faltering, and (2) strength in the euro after Oct Euro-Zone retail sales came in stronger than expected along with the action by the Bundesbank to hike its GDP forecasts for Germany for this year and next.

                Bullish factors included (1) the stronger-than-expected Nov ISM non-manufacturing index which expanded at its fastest pace in 6 months, and (2) the action by Goldman Sachs to push back its forecast for the ECB's first interest ra te increase to Q4 of next year from an earlier estimate of Q3 along with its prediction that the ECB may increase its purchases of government bonds to ensure that the European sovereign-debt crisis abates.

Tuesday, December 7, 2010...

.  The dollar index this morning is trading lower with the dollar/yen -0.07 yen and the euro/dollar +0.58 cents. The dollar index yesterday closed higher as the euro weakened after European governments showed division about how to contain the debt crisis: Dollar Index +0.194, USDJPY -0.058, EURUSD -0.01051.

                Bullish factors for the dollar included (1) comments from Fed Chairman Bernanke who said a return to recession "doesn't seem likely," (2) the euro negative action by Moody's Investors Service to cut Hungary's sovereign credit rating two levels to Baa3, its lowest investment grade with a negative outlook on concern the government's policy of plugging holes with "temporary measures" won't be sustainable, and (3) possible divisions among European leaders on how to contain the debt crisis after the Belgian finance minister said the 750 billion-euro ($1 trillion) EU bailout fund might be expanded, while Germany said it opposes any increase.

                Bearish factors included (1) the suggestion from Fed Chairman Bernanke that Fed asset purchases beyond the $600 billion already announced are "certainly possible" because of the stubbornly high US unemployment rate, and (2) jawboning from Bank of France Governor and ECB Council member Noyer who said the euro is a little bit overvalued against the dollar.

Wednesday, December 8, 2010...

•   The dollar index this morning is trading higher with the dollar/yen +0.46 yen and the euro/dollar -0.23 cents. The dollar index yesterday traded lower early after President Obama said he would agree to extend tax cuts, but erased its losses and finished higher as the euro weakened: Dollar Index +0.286, USDJPY +0.833, EURUSD -0.00459. The yen rallied to a 3-week high against the dollar but erased its gains and settled lower.

                Bullish factors included (1) comments from Japanese finance minister Noda who said the yen's movements have become one-sided and he will "keep a close eye" on the market, which may signal possible intervention in the currency market by Japan if recent yen strength continues, and (2) a possible increase in the safe-haven demand for the dollar after the IMF warned that the European economic recovery could "easily be derailed" by the debt crisis and that European finance ministers should increase the size of its 750 billion euro ba ilout fund.

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after global stock markets rallied when President Obama agreed to extend he Bush-era tax cuts for 2 years, and (2) the action by European finance ministers to rule out immediate aid for Portugal and Spain or to increase the 750 billion-euro bailout fund.

Thursday, December 9, 2010...

•   The dollar index this morning is trading higher with the dollar/yen -0.01 yen and the euro/dollar -0.44 cents. The dollar index yesterday moved higher on speculation the extension of US tax cuts will sustain the economic recovery: Dollar Index +0.140, USDJPY +0.541, EURUSD +0.00007.

                Bullish factors included (1) carry-over support from Tuesday's news of the extension of the Bush-era tax cuts, which may boost US economic growth, (2) the jump in the 10-year T-note yield to a 6-month high, which improves the dollar's interest rate differentials and may boost foreign demand for dollar-denominated assets, and (3) the unexpected decline in Oct German exports, which may signal a slowdown in the European economy and is euro negative.

                Bearish factors for the dollar included (1) the passing of an initial series of votes by Irish lawmakers for budget cuts in Ireland's 2011 budget, which is euro positive as it signals the possible passage of an austerity plan by Ireland to secure bailout funds, and (2) the unexpected increase in the Nov Bank of France business sentiment to a 2-3/4 year high.

Friday, December 10, 2010...

•   The dollar index this morning is trading lower with the dollar/yen -0.25 yen and the euro/dollar +0.17 cents. The dollar index yesterday closed higher for the fourth consecutive session on increased safe-haven demand after Ireland's credit rating was downgraded: Dollar Index +0.072, USDJPY -0.290, EURUSD -0.00237.

                Bullish factors included (1) weakness in the euro after Fitch Ratings cut Ireland's credit rating 3 levels to BBB+ from A+, citing "the additional fiscal costs of restructuring and supporting the banking system," and (2) the ECB's monthly bulletin which said the central bank will keep its emergency liquidity measures "as long as necessary, and at least" until mid-April.

                Bearish factors for the dollar included (1) strength in the yen after Q3 Japan GDP was revised higher, and (2) the euro positive statement from Fitch Ratings that said the Euro-Zone's "underlying credit fundamentals" are stronger than markets show and that the ri sk of a break-up of the Euro-Zone "is not sufficiently great to be factored into its sovereign debt ratings."

Monday, December 13, 2010...

•   The dollar index this morning is trading weaker with the dollar/yen +0.05 yen and the euro/dollar +0.56 cents. The dollar index last Friday finished slightly higher as the Oct US trade balance shrank more than expected and European leaders disagreed on how to stem the sovereign-debt crisis: Dollar Index +0.001, USDJPY +0.205, EURUSD -0.00106.

                Bullish factors included (1) weakness in the euro after France backed Germany in refusing to add to the European Union's 440 billion ($581 billion) rescue fund and rejected the idea of issuing joint euro-bonds, which shows division among European leaders on how to quell the European debt crisis, (2) the narrower than expected Oct US trade deficit which shrank to its lowest level in 9 months, and (3) the unexpected declines in Oct French industrial and manufacturing production, which is euro bearish.

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after the stock market rallied when the Dec US University of Michigan consumer confidence rose more than expected to a 6-month high, and (2) euro supportive comments from ECB President Trichet who said the economic recovery in the Euro-Zone is "on track" and that "every quarter we have revised upward the projections for growth this year in 2010."

Tuesday, December 14, 2010...

•   The dollar index this morning is trading weaker and posted a 3-week low in overnight trade with the dollar/yen -0.36 yen and the euro/dollar +0.78 cents. The dollar index yesterday fell to a 1-week low on reduced safe-haven demand after global stock markets rallied: Dollar Index -0.786, USDJPY -0.559, EURUSD +0.01631.

                Bearish factors included (1) the action by China to refrain from raising interest rates, which lifted global equity markets on increased demand for riskier assets, and (2) the statement from Moody's Investors Service that said the US tax-cut package up for a procedural vote in the Senate boosts the chances for a negative outlook on the US credit rating.

                Bullish factors for the dollar included (1) the early jump in Treasury yields which improved the dollar's interest rate differentials and may improve foreign demand for dollar assets, and (2) the quarterly report from Germany's Bundesbank that said 2011 German GDP growth may weaken to 2.0% from 3.6% this year as the German economy shows a "considerable slowdown" in Q1 of 2011, which is euro negative.

Wednesday, December 15, 2010...

•   The dollar index this morning is trading higher with the dollar/yen +0.18 yen and the euro/dollar -0.20 cents. The dollar index yesterday rebounded from a 3-week low and closed little changed on speculation that a strengthening US economy will prompt the Fed not to increase its asset purchases: Dollar Index +0.083, USDJPY +0.268, EURUSD -0.00129.

                Bullish factors included (1) the rise in Treasury yields after Nov US retail sales increased more than forecast, which may prompt the Fed to reduce its purchases of Treasury debt, and (2) the prediction from Bank of Tokyo-Mitsubishi that the dollar will strengthen to $1.27 per euro in Q1 of 2011 as the ongoing European sovereign-debt crisis will fuel an increase in the safe-haven demand for the dollar because "the dollar is the only viable liquid reserve-currency alternative to the euro."

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar as the stock market rallied, (2) the stronge r than expected Dec German ZEW economic sentiment which is euro positive, and (3) the Fed's pledge to keep interest rates low for an "extended period" along with keeping their plan to purchase $600 billion of Treasuries through June to "promote a stronger pace of economic recovery."

Thursday, December 16, 2010...

•   The dollar index this morning is trading lower with the dollar/yen -0.19 yen and the euro/dollar +0.41 cents. The dollar index yesterday closed higher on increased safe-haven demand from the European debt crisis along with stronger-than-expected US economic data: Dollar Index +0.894, USDJPY +0.580, EURUSD -0.01641.

                Bullish factors included (1) increased safe-haven demand for the dollar after Moody's Investors Service put Spain's credit rating on review for possible downgrade, (2) stronger-than-expected US economic data after the Dec Empire manufacturing index expanded more than expected while Nov industrial production rose more than forecast and Nov capacity utilization climbed to a 25-month high, and (3) the jump in the yield on the 10-year T-note to a 7-month high of 3.556%, which improves the dollar's interest rate differentials and may boost foreign demand for dollar assets.

                Bearish factors for the dollar included (1) a decrease in foreign demand for US dollar ass ets after the Oct TIC flows slowed from a month earlier, and (2) the prediction from Citigroup that the dollar may drop 11% against the euro next year as investors shun US assets and drive Treasury prices lower.

Friday, December 17, 2010...

•   The dollar index this morning is trading little changed with the dollar/yen +0.13 yen and the euro/dollar +0.09 cents. The dollar index yesterday finished slightly lower as short-covering in the euro ahead of the 2-day meeting of EU leaders offset stronger-than-expected US economic data that boosted Treasury yields: Dollar Index -0.080, USDJPY -0.326, EURUSD +0.00299.

                Bearish factors for the dollar included (1) concern that the US housing crisis may derail the economic recovery after Nov US building permits unexpectedly declined to 19-month low, (2) euro short-covering ahead of the 2-day summit in Brussels by EU leaders to discuss the debt crisis, and (3) the larger-than-expected increase in the Dec German PMI manufacturing index to a 5-month high, which is euro positive.

                Bullish factors included (1) stronger-than-expected US economic data on weekly initial unemployment claims and Dec Philadelphia Fed manufacturing, which sent the yield on the 10-year T-note to a 7-mo nth high of 3.56% and improves the dollar's interest rate differentials and may increase demand for dollar assets, (2) the action from Moody's Investor's Service to place Greece's Ba1 local and foreign currency government bond ratings on review for possible downgrade, which is euro negative and may increase the safe-haven demand for the dollar.

Monday, December 20, 2010...

•   The dollar index this morning is trading higher with the dollar/yen -0.20 yen and the euro/dollar -0.21 cents. The dollar index last Friday rallied to a 2-week high and closed higher on increased safe-haven demand on concern the European sovereign-debt crisis will worsen: Dollar Index +0.192, USDJPY -0.035, EURUSD -0.00584.

                Bullish factors for the dollar included (1) increased safe-haven demand for the dollar after Moody's Investors Service downgraded Ireland's credit rating five notches to Baa1 from Aa2 with a negative outlook, (2) weakness in the British pound which plunged to a 3-month low against the dollar after Nov UK nationwide consumer confidence unexpectedly fell to a 20-month low, and (3) disappointment that the 2-day EU summit on the debt crisis failed to yield any immediate concrete steps to stem the crisis, which undercut confidence in the euro and fueled its decline to a 2-week low against the dollar.

                Bearish factors included (1) the unexpected increase in the Dec German IFO business climate which rose to its highest level since records for a reunified Germany began in 1991 and is euro bullish, and (2) the agreement by European Union leaders to amend the bloc's treaties to create a permanent debt-crisis mechanism in 2013, which temporarily boosted the euro.

Tuesday, December 21, 2010...

•   The dollar index this morning is trading lower with the dollar/yen -0.12 yen and the euro/dollar +0.24 cents. The dollar index yesterday climbed to a 2-week high and finished higher due to increased safe-haven demand on concern Europe's debt crisis may worsen: Dollar Index +0.255, USDJPY -0.107, EURUSD -0.00542.

                Bullish factors for the dollar included (1) the slide in the euro to a 2-week low against the dollar after the ECB said it has "serious concerns" that Ireland's new banking legislation might threaten the central bank's ability to run liquidity operations, (2) increased safe-haven demand for the dollar after the costs to insure French government debt rose to a record, which indicates France may be at risk of losing its top credit rating, (3) the unexpected drop in Dec Euro-Zone consumer confidence which weakened for the first time in the last 6 months, and (4) comments from St. Louis Fed President Bullard who said the European fiscal crisis is "very serious" and that he thinks it will continue for "quite a while."

                Bearish factors included (1) comments from Spanish Finance Minister that Salgado who said that Spain will meet its overall deficit goal of 9.3% of GDP this year, which is euro positive, and (2) euro bullish comments from ECB President Trichet who attempted to jawbone the euro higher when he said the euro remains a credible currency and the idea that some states might withdraw from it is "absurd."

Wednesday, December 22, 2010...

•   The dollar index this morning is trading lower with the dollar/yen -0.23 yen and the euro/dollar +0.56 cents. The dollar index yesterday traded mixed most of the day but then rallied to a 2-week high late in the session and closed higher on increased European debt concerns: Dollar Index +0.255, USDJPY -0.107, EURUSD -0.00542.

                Bullish factors included (1) increased safe-haven demand for the dollar as the euro slipped to a 2-week low against the dollar on concern the European sovereign-debt crisis may worsen after the cost to insure Portuguese government debt rose to a 3-week high when Moody's Investors Service said it may cut Portugal's bond rating "by a notch or two" because of concerns over "sluggish" economic growth, along with the action by Fitch Ratings to put Greece's debt ratings on rating watch negative as it reviews the nation's "fiscal sustainability," and (2) a possible increase in international demand for dollars after the Fed e xtended its dollar swap arrangement with the ECB, the BOJ, the BOE, the BOC and the SNB through Aug 1 of 2011.

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after global stock markets rallied and as tensions eased on the Korean Peninsula, and (2) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who attempted to jawbone the euro higher when he said the "euro is not in crisis" and that any such speculation is "unfounded chatter."

Thursday, December 23, 2010...

•   The dollar index this morning is trading little changed with the dollar/yen -0.53 yen and the euro/dollar -0.10 cents. The dollar index yesterday gyrated on either side of unchanged as weaker-than-expected US economic data offset European debt crisis concerns: Dollar Index +0.009, USDJPY -0.172, EURUSD -0.00015.

                Bearish factors included (1) the weaker than expected upward revision to US Q3 GDP along with the smaller-than-expected increase in Nov US existing home sales, and (2) strength in the euro after Nov German import prices rose a more-than-expected +10.0% y/y, a 10-year high.

                Bullish factors for the dollar included (1) the slump in the British pound to a 3-1/2 month low against the dollar after Q3 UK GDP was unexpectedly revised lower, and (2) increased safe-haven demand for the dollar on concern the European sovereign-debt crisis will worsen after credit-default swaps insuring Greek government debt rose 13 bp to a 1-month high of 983 bp.

Monday, December 27, 2010...

•   The dollar index this morning is trading weaker and at a 1-week low with the dollar/yen -0.09 yen and the euro/dollar +0.39 cents. The dollar index last Thursday finished weaker as reports showed strength in the US economy, which reduced demand for the dollar in favor of riskier higher-yielding assets: Dollar Index -0.231, USDJPY -0.654, EURUSD +0.00145.

                Bearish factors included (1) the increase in Nov US personal spending for a fifth month, which indicates the economic recovery is continuing, and (2) the stronger-than-expected Nov French consumer spending, which is euro positive.

                Bullish factors for the dollar centered on increased safe-haven demand on concern the European sovereign-debt crisis is worsening after (1) Fitch Ratings cut Hungary's long-term credit rating with a negative outlook and also downgraded Portugal's long-term foreign and local currency issuer default ratings with negative outlooks, and (2) credit-default swaps to insure Greek government debt ro se +38 bp to a 1-month high of 1,019 bp.

Tuesday, December 28, 2010...

•   The dollar index this morning is trading lower and at a 1-week low with the dollar/yen -0.94 yen and the euro/dollar +0.100 cents. The dollar index yesterday fell to a 1-week low and closed lower after China raised interest rates: Dollar Index -0.108, USDJPY -0.112, EURUSD +0.00511. The Japanese yen climbed to a 2-1/2 week high against the dollar.

                Bearish factors included (1) the action by China to hike interest rates for the second time in 2 months, which boosted the yen to a 2-1/2 week high against the dollar on increased safe-haven demand, and (2) strength in the euro after the ECB said it boosted its purchases of Euro-Zone government bonds the past week to 1.12 billion euros ($1.45 billion), nearly double the previous week, which may stop or slow the European debt crisis and reduce the safe-haven demand for the dollar.

                Bullish factors for the dollar included (1) comments from ECB Executive Board member Stark who said that while some European economies have shown surprisingly strong recoveries, high debt levels don't only affect individual nations and "we are still in an open crisis," and (2) weakness in the commodity currencies of Australia and Canada on speculation that Chinese commodity demand will weaken after it raised interest rates.

Wednesday, December 29, 2010...

•   The dollar index this morning is trading weaker with the dollar/yen -0.25 yen and the euro/dollar +0.09 cents. The dollar index yesterday fell to a 1-week low but recovered its losses and finished little changed after the ECB failed to neutralize the extra liquidity created by its bond purchases: Dollar Index -0.001, USDJPY -0.419, EURUSD -0.00499. The Japanese yen rallied to a 1-1/2 month high against the dollar.

                Bullish factors for the dollar included (1) the unexpected downward revision to Q3 French GDP, which is euro negative, (2) the action by the ECB to drain only 61.78 billion euros of excess liquidity caused by its recent bond purchases, nearly 13 billion euros less than the 73.5 billion euros it intended to absorb, which is actual quantitative easing and is bearish for the euro, and (3) comments from Japanese Finance Minister Noda who attempted to jawbone the yen lower with hints of currency intervention when he said the yen's recent appreciation has been &qu ot;one-sided" and he warned of "bold" action against the yen's advance if needed.

                Bearish factors included (1) the unexpected decline in Dec US consumer confidence which is dollar negative, and (2) the larger-than-expected decline in the Oct S&P/CaseShiller home price index, which may prompt the Fed into additional easing measures due to the weak housing market.

Thursday, December 30, 2010...

•   The dollar index this morning is trading lower and at a 1-1/2 week low with the dollar/yen -0.06 yen and the euro/dollar +0.26 cents. The dollar index yesterday settled lower as the euro strengthened on rising consumer prices in Germany and an increase in private sector lending in the Euro-Zone: Dollar Index -0.569, USDJPY -0.774, EURUSD +0.01103. The yen strengthened to a 1-1/2 month high against the dollar.

                Bearish factors for the dollar included (1) the report from the ECB that Nov European loan growth to the private sector rose +2.0% y/y, the fastest pace of growth since Apr 2009, (2) the +1.9% y/y increase in Dec German CPI (EU harmonized), its largest y/y gain in 2 years, and (3) reduced safe-haven demand for the dollar after the Dow and S&P 500 rallied to 2-1/4 year highs.

Friday, December 31, 2010...

•   The dollar index this morning is trading lower and at a 2-1/2 week low with the dollar/yen -0.22 yen and the euro/dollar +0.97 cents. The dollar index yesterday fell to a 2-week low and closed lower after stronger-than-expected US economic data prompted a decline in dollar demand in favor of riskier assets: Dollar Index -0.275, USDJPY -0.089, EURUSD +0.00633. The yen strengthened to a 1-1/2 month high and the euro rose to a 1-1/2 week high against the dollar.

                Bearish factors for the dollar included (1) strength in commodity currencies such as the Australian dollar which rose to its highest level against the dollar since it became free-floating in 1983, and (2) the rally in the yen to a 1-1/2 month high against the dollar as stronger-than-expected US economic data prompted reduced demand for dollars in favor of higher-yielding riskier assets.

                Bullish factors included (1) comments from ECB Council member Nowotny who said it can't be ruled out "that there will be f urther challenges for some Euro-Zone countries in 2011," and (2) and an increase in Treasury yields which benefits the dollar's interest rate differentials and may help boost foreign demand for dollar assets.

Monday, January 3, 2011...

•   The dollar index this morning is trading 0.37 points higher with the dollar/yen up 0.31 yen and the euro/dollar down 0.74 cents. The dollar index is higher this morning on some short-covering after last Friday's sharp sell-off. The dollar index last Friday sank to a 5-week low and closed lower for the seventh consecutive session as Euro-Zone officials jawboned the euro higher: Dollar Index -0.493, USDJPY -0.393, EURUSD +0.00963. The yen rallied to a 1-1/2 month high and the euro rose to a 2-1/2 week high against the dollar.

                Bearish factors for the dollar included (1) strength in the British pound after Dec UK nationwide house prices unexpectedly rose for the first time in 7 months, (2) comments from German Chancellor Merkel who vowed to defend the euro as the "foundation" of her nation's economy, and (3) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the euro is the world's "most solid" currency and that " the euro's existence and its essence are not at risk."

                Bullish factors was the prediction from the Chief Executive of the CEBR that the Euro-Zone will have another debt crisis this spring when Italy and Spain have to refinance more than 400 billion euros ($532 billion) of bonds.

Tuesday, January 4, 2011...

•   The dollar index this morning is trading slightly lower by 0.17 points, with the dollar/yen up 0.44 yen and the euro/dollar up 0.44 cents. The euro is higher on strong European stocks and an improved view of the European economy. The dollar index on Monday consolidated above last Friday's 6-week low and closed slightly higher: Dollar Index +0.193, USDJPY +0.62, EURUSD -0.0023.

                Bullish factors for the dollar included the strong US economic data and some technical short-covering after last Friday's 6-week low.

Wednesday, January 5, 2011...

•   The dollar index this morning is trading stronger, with the dollar/yen +0.14 yen and the euro/dollar -0.75 cents. The dollar on Tuesday closed mildly higher: Dollar Index +0.292, USDJPY +0.30, EURUSD -0.0053.

                Bullish factors included the stronger-than-expected US economic data and some short-covering after last week's sell-off.

                Bearish factors included the pound-positive news of the 16-year high in the UK PMI index to 58.3 and the euro-positive news of a rise in the Eurozone CPI to 2.2% y/y from +1.9% in November, which was above the ECB's inflation ceiling.

Friday, January 7, 2011...

•   The dollar index this morning is higher and at a 1-month high with the dollar/yen +0.24 yen and the euro/dollar -0.25 cents. The dollar on Thursday strengthened throughout the day and settled higher: Dollar Index +0.533, USDJPY +0.088, EURUSD -0.01464. The dollar index climbed to a 1-month high and the euro tumbled to a 1-month low against the dollar.

                Bullish factors included (1) euro weakness after Nov Euro-Zone retail sales unexpectedly declined along with concern that the European debt crisis is worsening after KBC Groep NV, Belgium's largest bank, said it will take additional provisions of as much as 330 million euros ($434 million), partly related to its Irish loan book, and (2) increased demand for dollars on speculation that Friday's Dec payrolls report will show strength in the economy with employers adding jobs for a third month.

                Bearish factors included (1) the biggest monthly increase in Nov German factory orders in the last 10 months, and (2) the larger- than-expected increase in the Dec Euro-Zone business climate indicator to its best level in 3-1/2 years, which is euro positive.

Monday, January 10, 2011...

•   The dollar index this morning is stronger and trading at a 1-1/4 month high with the dollar/yen +0.06 yen and the euro/dollar -0.04 cents. The dollar last Friday gyrated between gains and losses and finally finished slightly higher: Dollar Index +0.148, USDJPY -0.291, EURUSD -0.00935. The dollar index climbed to a 1-1/4 month high and the euro slumped to a 3-1/2 month low against the dollar.

                Bullish factors included (1) euro weakness on increased sovereign-debt risks after the Markit iTraxx SovX Western Europe Index of credit-default swaps on the debts of 15 European governments rose to a record high 214, (2) the unexpected decline in Nov German retail sales by -2.4% m/m, its biggest fall in 2-1/2 years, and (3) comments from ECB President Trichet who said governments shouldn't rely on the ECB to get Europe out of its debt crisis as he urged for more fiscal tightening, which may slow the Euro-Zone economy and weaken the euro.

               Bearish factors included (1) the smaller -than-expected increase in Dec US nonfarm payrolls, which may prompt the Fed to further increase its quantitative easing measures, and (2) comments from Fed Chairman Bernanke who said the US economy is in a "weak" and "fragile" condition and that "it could take 4 to 5 more years for the job market to normalize fully."

Tuesday, January 11, 2011...

•   The dollar index this morning is weaker with the dollar/yen +0.27 yen and the euro/dollar +0.23 cents. The dollar index yesterday fell back from a 1-1/4 month high and settled lower: Dollar Index -0.131, USDJPY -0.339, EURUSD +0.00417.

                Bearish factors included (1) a recovery in the euro which rebounded from a 3-3/4 month low against the dollar and settled higher after ECB President Trichet said that recent European economic indicators "were better than forecast," and (2) the stronger than expected Nov French industrial and manufacturing production, which is euro positive.

                Bullish factors included (1) the early slump in the euro to a 3-3/4 month low against the dollar on concern the European sovereign-debt crisis may worsen after the Markit iTraxx SovX Western Europe Index of credit-default swaps on the debts of 15 European governments rose to a record high 223, and (2) the prediction from BlueGold Capital Management that Germany, France and other European to p-rated nations risk having their credit ratings downgraded in the event that European policy makers expand bailout funds.

Wednesday, January 12, 2011...


•   The dollar index this morning is lower with the dollar/yen +0.13 yen and the euro/dollar +0.03 cents. The dollar index yesterday closed little changed: Dollar Index -0.035, USDJPY +0.536, EURUSD +0.00225.

                Bearish factors included (1) strength in the euro after Japanese Finance Minister Noda said his country plans to buy more than 20% of bonds to be issued later this month by the European Financial Stability Facility as Japan joins China in promising to purchase Euro-Zone debt in an attempt to stem the European debt crisis, (2) comments from Portuguese Prime Minister Socrates who said that Portugal doesn't need a bailout from the European Union and its 2010 budget deficit will be lower than forecast, and (3) strength in the yuan after China's foreign-exchange reserves climbed to a record and China's bank lending exceeded the government's annual target.

                Bullish factors included (1) apprehension ahead of Portugal's, Spain's and Italy's debt auctions later this week, whic h may see increased safe-haven demand for the dollar as the indebted European nations struggle to fund their deficits, (2) comments from ECB Council member Weber who said optimism on containing the European sovereign-debt crisis is "premature," and (3) comments from Philadelphia Fed President Plosser who said the Fed's $600 billion QE2 asset-purchase program "may soon backfire on us" and spur inflation if "we don't begin to gradually reverse course," which indicates he is not in favor of completing the entire asset-purchase program.

Thursday, January 13, 2011...

•   The dollar index this morning is weaker and at a 1-week low with the dollar/yen -0.01 yen and the euro/dollar +0.41 cents. The dollar index yesterday settled sharply lower: Dollar Index -0.815, USDJPY -0.245, EURUSD +0.01587.

                Bearish factors included (1) strength in the euro after Portugal's borrowing costs fell from a month ago after a successful auction of 10-year notes, which temporarily eases sovereign-debt concerns, (2) speculation that European leaders will increase their efforts to stem the debt crisis after European Union Economic and Monetary Affairs Commissioner Rehn said that Europe's bailout fund "should be reinforced and the scope of its activity widened," (3) the stronger-than-expected Nov Euro-Zone industrial production, which is euro positive, and (4) euro supportive comments from PBOC Deputy Governor Yi Gang who said that China is a long-term investor in European financial markets and will continue that policy.

                Bullish factors included (1) a pprehension ahead of Spain's and Italy's debt auctions on Thursday, which may see increased safe-haven demand for the dollar as the indebted European nations struggle to fund their deficits, and (2) the warning from Nobel Prize-winning economist Pissarides that the European Union doesn't have the resources to rescue Spain from a full-blown fiscal crisis, which could lead to the end of the euro.

Friday, January 14, 2011...

•   The dollar index this morning is slightly higher and rebounded from a 2-week low with the dollar/yen +0.12 yen and the euro/dollar -0.34 cents. The dollar index yesterday fell to a 1-week low and closed lower for a third day: Dollar Index -0.840, USDJPY -0.186, EURUSD +0.02311.

                Bearish factors included (1) euro supportive comments from ECB President Trichet who said the risks to medium term inflation "are still broadly balanced but could move to the upside," and (2) strong demand for Spain's auction of 5-year bonds, which eased sovereign-debt concerns and boosted the euro to a 1-week high against the dollar.

                Bullish factors included (1) the unexpected narrowing of the Nov US trade balance, which is dollar supportive, and (2) the larger-than-expected increase in Dec US producer prices which posted their biggest monthly gain in 11 months.

Dollar strengthens

US Dollar Index...
The US Dollar Index is consolidating between 79 and 81.50. Upward breakout is more likely, especially considering that Twiggs Momentum (21-day) is holding above zero. Breakout would signal a primary advance with a medium-term target of 84*, while reversal below 79 would test primary support at 76.

* Target calculation: 79 + ( 81 - 76 ) = 84

Tuesday, January 18, 2011...

•   The dollar index this morning is weaker and at a 1-3/4 month low with the dollar/yen -0.14 yen and the euro/dollar +1.11 cents. The dollar index last Friday rebounded from a 2-week low to settle little changed: Dollar Index -0.029, USDJPY +0.186, EURUSD +0.00096.

                Bearish factors included (1) weaker-than-expected US economic data on retail sales and consumer confidence, (2) strength in the euro after euro supportive comments from ECB Council member Weber who said "the economic outlook has brightened considerably" and that inflation risks "could well move to the upside," (3) the action by Citigroup to revise its forecast for the ECB's first rate increase to the second half of this year from the first quarter of 2012, and (4) the recommendation from BNP Paribas that investors buy the euro against the dollar after recent comments from ECB President Trichet and fellow council member Weber "are a significant change in tone" and will prompt the m arket to price in earlier rate hikes from the ECB.

                Bullish factors included (1) the stronger-than-expected Dec US industrial production and capacity utilization, and (2) the prediction from Brown Brothers Harriman that he euro may weaken to $1.18 by Jun as the European debt crisis weighs on sentiment.

Wednesday, January 19, 2011...

•   The dollar index this morning is weaker and at a 1-3/4 month low with the dollar/yen -0.32 yen and the euro/dollar +0.91 cents. The dollar index yesterday slid to a 1-3/4 month low and finished weaker on speculation Euro-Zone finance ministers will increase efforts to prevent the sovereign-debt crisis from deepening: Dollar Index -0.375, USDJPY -0.442, EURUSD +0.00142.

                Bearish factors included (1) a rally in the euro to a 1-month high against the dollar on speculation that European leaders will increase their efforts to stem the debt crisis after European Union Economic and Monetary Affairs Commissioner Rehn said, "We shall improve our current existing financial backstops so that the so-called market forces cannot have even the slightest doubt about our capacity to act even in the most stresses scenarios," (2) the larger-than-expected increase in the Jan German ZEW economic sentiment survey to a 6-month high, which is euro supportive, (3) strength in the Brit ish pound which climbed to a 1-3/4 month high against the dollar after Dec UK CPI matched its highest level in 2 years and fuels speculation the BOE may need to raise interest rates, and (4) the prediction from the Canadian Imperial Bank of Commerce that the Fed will be on hold until 2013 as the US housing and labor markets struggle to recover.

                Bullish factors included (1) comments from Philadelphia Fed President Plosser who said he won't rule out raising interest rates despite unemployment remaining too high for the foreseeable future, and (2) the larger-than-expected increase in the Nov long-tern TIC flows, which signals strong foreign demand for US dollar assets.

Thursday, January 20, 2011...

•   The dollar index this morning is weaker with the dollar/yen +0.21 yen and the euro/dollar +0.19 cents. The dollar index yesterday slumped to a 1-3/4 month low and settled lower amid signs the US economic recovery will remain sluggish: Dollar Index -0.322, USDJPY -0.538, EURUSD +0.00855.

                Bearish factors included (1) the slump in Dec US housing starts to a 20-month low, which may weaken the economy as the housing crisis lingers, and (2) strength in the euro which rose to a 1-3/4 month high against the dollar as debt concerns eased as Portugal's borrowing costs fell after strong demand was seen at the sale of 750 million euros of 1-year Portuguese bills.

                Bullish factors included (1) comments from ECB Council member Nowotny who said that ECB President Trichet's CPI statements were interpreted by financial markets in a "one-sided-way" and that he "sees present rates adequate" for the "foreseeable future," which diminishes speculation that the ECB is on the verge or raising borrowing costs, and (2) the fall in Greek 10-year government bonds after Die Zeit newspaper reported that the German government is considering a plan that would help Greece "restructure" its debt, which raised sovereign-debt concerns and increased safe-haven demand for the dollar.

Dollar breaks support...

US Dollar Index
The US Dollar Index broke below support at 79, signaling a test of primary support at 76. Twiggs Momentum (21-day) reversing below zero strengthens the signal. Recovery above 79.50 is unlikely, but would warn of a bear trap.

Friday, January 21, 2011...

•   The dollar index this morning is weaker with the dollar/yen -0.26 yen and the euro/dollar +0.55 cents. The dollar index yesterday strengthened on stronger-than-expected US economic data along with weakness in commodity currencies: Dollar Index +0.183, USDJPY +0.980, EURUSD -0.00004.

                Bullish factors included (1) signs of strength in the US economy after weekly US initial unemployment claims fell more than expected and Dec existing home sale rose to a 7-month high, and (2) weakness in the commodity currencies of the world (i.e., Australian and Canadian dollars) on concerns that Chinese demand for commodities may weaken on speculation the PBOC may hike interest rates further after China's Q4 GDP expanded more than forecast.

                Bearish factors included (1) the stronger-than-expected Dec German producer prices, which is euro bullish, and (2) the warning from Fitch Ratings that record US budget deficits due to stimulus measures and a lack of a plan to reduce debt may undermine confidence in the dollar and will place the US as the "worst of any AAA rated sovereign."

US Dollar Index...

The US Dollar Index broke below support at 79, signaling a test of primary support at 76. Twiggs Momentum (21-day) reversing below zero strengthens the signal. Recovery above 79.50 is unlikely, but would warn of a bear trap.

Monday, January 24, 2011...

•   The dollar index this morning is higher with the dollar/yen +0.33 yen and the euro/dollar -0.63 cents. The dollar index last Friday slid to a 2-month low and closed lower after business confidence in Germany unexpectedly increased: Dollar Index -0.610, USDJPY -0.416, EURUSD +0.01414.

                Bearish factors included (1) the rally in the euro to a 2-month high against the dollar after the unexpected increase in the Jan IFO German business climate to its highest level since records for a reunified Germany began in 1991, which is euro supportive, and (2) the increase in the Jan French business confidence indicator to a 2-3/4 year high.

                Bullish factors for the dollar last Friday was the warning from Fitch Ratings that there is a continuing risk that Euro-Zone nations will have their credit ratings downgraded until fiscal consolidation is secured and the economic recovery is broad-based, which may lead to renewed safe-haven demand for the dollar.

Tuesday, January 25, 2011...

•   The dollar index this morning is stronger with the dollar/yen -0.09 yen and the euro/dollar -0.12 cents. The dollar index yesterday fell to a 2-1/4 month low and closed lower on reduced safe-haven demand for the dollar as the stock market rallied: Dollar Index -0.195, USDJPY -0.051, EURUSD +0.00234.

                Bearish factors included (1) a rally in the euro to a 2-month high against the dollar after the unexpected increase in the Jan Euro-Zone PMI composite index which expanded at its fastest level in 6 months, and (2) reduced safe-haven demand for the dollar after the equity market rallied.

                Bullish factors for the dollar included (1) dovish comments from ECB Council member Stark who said "I could imagine" the European Financial Stability Facility "recapitalizing banks or buying sovereign-debt," which would be negative for the euro, and (2) comments from ECB President Trichet who said the ECB wouldn't react to a temporary jump in inflation caused by higher c ommodity prices as long as it doesn't fuel wage increases, or so-called "second-round effects," which signals no near-term interest rate hike by the ECB despite any uptick in inflation.

Wednesday, January 26, 2011...

•   The dollar index this morning is lower and at a 2-1/2 month low with the dollar/yen -0.07 yen and the euro/dollar +0.22 cents. The dollar index moved higher early yesterday but finished little changed after Treasury yields fell on speculation President Obama will propose a 5-year freeze on non-security discretionary spending: Dollar Index -0.048, USDJPY -0.276, EURUSD +0.00443.

                Bullish factors included (1) a slump in the British pound to a 1-1/2 week low against the dollar after Q4 UK GDP unexpectedly contracted, (2) the jump in Jan US consumer confidence to an 8-month high, and (3) renewed European sovereign-debt concerns after Moody's Investors Service warned that Spain's banks may need as much as 89 billion euros in a stressed case scenario.

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after the IMF raised their forecast for global economic growth this year to 4.4% from an Oct forecast of 4.2%, (2) the unexpected increase in Feb German GfK consumer confidence which climbed to a 3-year high and is euro supportive, and (3) the 9 bp drop in the 10-year T-note yield on speculation President Obama will propose a 5-year freeze on non-security discretionary spending, which weakened the dollar's interest rate differentials.

Thursday, January 27, 2011...

•   The dollar index this morning is weaker and fell to a fresh 2-1/2 month low in overnight trade with the dollar/yen +0.82 yen and the euro/dollar +0.09 cents. The dollar index fell to a 2-1/2 month low yesterday but finished little changed on speculation that continued stimulus from the Fed will sustain the US economic recovery: Dollar Index -0.104, USDJPY -0.079, EURUSD +0.00306.

                Bearish factors included (1) strength in the euro which rallied to a 2-month high against the dollar after Dec German import prices rose +12.0% y/y, the fastest annual pace in 29 years, and (2) the increase in the 3-month Euribor rate to a 1-1/2 year high of 1.051%, which shows strong demand for euros.

                Bullish factors for the dollar included (1) speculation that the Fed's quantitative easing will sustain the US economic recovery, (2) the stronger-than-expected Dec US home sales which rose to an 8-month high and signals strength in the US economy, and (3) comments from ECB President Trichet wh o said that ECB government bond purchases are an "ongoing program," which is euro negative as it signals no immediate end to ECB bond purchases.

January 28, 2011...

•   The dollar index this morning is lower with the dollar/yen -0.73 yen and the euro/dollar -0.13 cents. The dollar index slipped to a 2-1/2 month low yesterday and finished lower on concern the US economy will struggle to sustain the recovery: Dollar Index -0.171, USDJPY +0.745, EURUSD +0.00206.

                Bearish factors for the dollar included (1) weak US economic data on Dec durable goods orders and weekly jobless claims, which may prevent the Fed from ending its stimulus measures, (2) euro supportive comments from ECB Council member Bini Smaghi who said that policy makers in advanced economies "can no longer afford" to ignore imported inflation, and (3) jawboning from French President Sarkozy that boosted the euro when he said European leaders would continue defending the euro and that "the consequences of a euro failure would be so cataclysmic that we can't even entertain the idea."

                Bullish factors included (1) the drop in the Japanese yen to a 2-week low against the dollar after Standard & Poor's cut Japan's credit rating one step to AA-, saying the government lacks a "coherent strategy" to address a 943 trillion yen ($11 trillion) debt burden, and (2) the prediction from S&P that it sees Spain, Ireland, Greece and Portugal "stuck in recession" due to the sovereign-debt crisis, which would be euro negative.

Dollar weakens, gold finds support

US Dollar Index...

The fall in the greenback is slowing, reflected by shorter bodies on the last three candles. Expect retracement to test the new resistance level at 79 on the US Dollar Index. Respect would confirm a test of primary support at 76. Twiggs Momentum (21-day) below zero suggests a down-trend; a peak below zero would strengthen the signal. Recovery above 79.50 is unlikely, but would warn of a bear trap.

Monday, January 31, 2011...

•   The dollar index this morning is weaker with the dollar/yen +0.09 yen and the euro/dollar +0.65 cents. The dollar index last Friday overcame early weakness and finished higher on increased safe-haven demand on concern that civil unrest in Egypt may spread: Dollar Index +0.406, USDJPY -0.789, EURUSD -0.01239.

                Bullish factors for the dollar included (1) increased safe-haven demand for the dollar after Fitch Ratings lowered the outlook on Egypt's debt rating to "negative" from "stable," saying the civil unrest increases the "uncertainty" over political and economic prospects, and (2) the larger-than-expected increase in the Jan US University of Michigan consumer confidence, which bolsters the prospects for the US economy.

                Bearish factors included (1) the weaker-than-expected US Q4 GDP, and (2) the warning from Moody's Investors Service that it may need to place a "negative" outlook on the US debt rating sooner than anticipated.

Tuesday, February 1, 2011...

The dollar index this morning is weaker and posted a fresh 2-1/2 month low with the dollar/yen -0.41 yen and the euro/dollar +0.58 cents. The dollar index yesterday fell to a 2-1/2 month low and closed moderately lower after US inflation slowed further below the Fed's long-term forecast and after the euro strengthened when Euro-Zone inflation accelerated this month: Dollar Index -0.415, USDJPY -0.087, EURUSD +0.00843.

                Bearish factors for the dollar included (1) the +0.7% y/y increase in the Dec PCE core deflator, the Fed's preferred price index, which posted its smallest increase since records began in 1959 and may prompt the Fed into additional stimulus measures, which would be dollar negative, (2) the increase in the Jan Euro-Zone CPI estimate to +2.4% y/y, its biggest increase in 2-1/4 years, which may prompt the ECB into raising interest rates sooner than expected, and (3) stronger interest rate differentials for the euro after the 3-month Euribor rate rose to a 1- 1/2 year high of 1.074%.

                Bullish factors included (1) the unexpected decline in Dec German retail sales which fell for the second straight month and is euro negative, and (2) stronger-than-expected US economic data on Dec personal spending and the Jan Chicago purchasing managers index, which is dollar supportive as it indicates continued expansion of the US economy.

Wednesday, February 2, 2011...

•   The dollar index this morning is weaker and posted a fresh 2-3/4 month low in overnight trade with the dollar/yen +0.12 yen and the euro/dollar -0.25 cents. The dollar index yesterday posted a 2-1/2 month low and closed lower for a second day on reduced tensions in Egypt along with strength in the euro on speculation that the Euro-Zone rescue fund may buy distressed government debt: Dollar Index -0.668, USDJPY -0.624, EURUSD +0.01327.

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after concern eased from the Egyptian crisis when the Egyptian military said it won't fire on protesters, (2) a rally in the euro to a 2-1/2 month high against the dollar after people familiar with the situation said European officials were near an agreement to enable the 440 billion euro rescue fund to buy bonds directly from distressed governments instead of offering bailout loans, (3) strong European economic data which is euro supportive after German unemployment fell to an 18-year low in Jan and the Jan Euro-Zone PMI manufacturing index was unexpectedly revised up to a 9-month high, (4) strength in the British pound which rallied to a 2-1/2 month high against the dollar after the Jan UK PMI manufacturing index unexpectedly expanded at its best level since data began in 1992, and (5) stronger interest rate differentials for the euro after the 3-month Euribor rate rose to a 1-1/2 year high of 1.082%.

                Bullish factors included (1) the unexpected increase in the Jan ISM manufacturing index which expanded at its best level in 6-1/2 years and points to strong growth in the US manufacturing sector, and (2) the action by the ECB to fail to sterilize its recent bond purchases with deposits when it drained 68.2 billion euros ($93.9 billion) from money markets via 7-day term deposits, -8.3 billion euros less than the 76.5 billion euros it intended to absorb, which amounts to quantitative easing and is negative for the euro.

Thursday, February 3, 2011...

•   The dollar index this morning is higher with the dollar/yen +0.13 yen and the euro/dollar -0.48 cents. The dollar index yesterday sank to a 2-3/4 month low but erased its losses and finished higher after the euro plunged when S&P cut Ireland's credit rating: Dollar Index +0.036, USDJPY +0.201, EURUSD -0.00179.

                Bullish factors for the dollar included (1) increased safe-haven demand for the dollar and weakness in the euro after Standard & Poor's cut Ireland's credit rating to A- from A and said the country remains on "creditwatch with negative implications," and (2) the action by the German government to rule out allowing the European Financial Stability Facility to fund bond buybacks for distressed European nations, which revives concern the sovereign-debt crisis may worsen.

                Bearish factors included (1) strength in the British pound which rallied to a 2-3/4 month high against the dollar after BOE policy member Sentance said the BOE must raise interest rates now at a steady pace to avoid a large increase later, and (2) the increase in the Dec Euro-Zone PPI to a 2-year high of 5.3% y/y, which raises expectations for rate hikes by the ECB and is euro supportive.

Friday, February 4, 2011...

•   The dollar index this morning is slightly higher with the dollar/yen +0.03 yen and the euro/dollar -0.05 cents. The dollar index yesterday settled higher after the euro slumped on dovish remarks from ECB President Trichet: Dollar Index +0.643, USDJPY +0.068, EURUSD -0.01766.

                Bullish factors for the dollar included (1) euro weakness after comments from ECB President Trichet who said that interest rates "remain appropriate" and inflation risks are "broadly balanced," which dims the prospects for ECB rate hikes, and (2) the stronger-than-expected Q4 nonfarm productivity and the unexpected decline in Q4 unit labor costs, which is dollar supportive.

                Bearish factors included (1) strength in the British pound which rallied to a 2-3/4 month high against the dollar after the Jan UK PMI services index increased to an 8-month high, which boosts expectations of interest rate hikes by the BOE this year, and (2) the unexpected upward revision to the Jan Euro-Zon e PMI composite index to a 9-month high, which is euro supportive.

Monday, February 7, 2011...

•   The dollar index this morning is stronger with the dollar/yen +0.15 yen and the euro/dollar -0.33 cents. The dollar index last Friday finished higher after the US Labor Department said the weak payrolls report was due to winter storms: Dollar Index +0.227, USDJPY +0.575, EURUSD -0.00470.

                Bullish factors for the dollar included (1) the statement from the US Labor Department that said bad weather prevented 886,000 Americans from going work to the week of the Labor Department's Jan monthly job survey, compared with an average of 282,000 over the past 5 Januarys, which suggests that winter storms caused much of the weakness in the Jan payrolls report, and (2) euro weakness after comments from ECB Council member Nowotny who said "The ECB anticipates 1.8% inflation" next year, which suggests the ECB still expects inflation to fall back below its 2.0% limit over its policy-relevant time horizon and reduces pressure on them to increase interest rates.

                Bearish factor s included (1) early weakness in the dollar after the weaker-than-expected Jan nonfarm payrolls, although the dollar recovered after the US Labor Department said weather caused most of the weakness, and (2) strong demand for euros as the 3-month Euribor rate climbed to a 19-month high of 1.088% as banks hoard euros on concern the ECB may withdraw its emergency cash supplies in April.

US Dollar Index...

The Dollar Index is headed for a test of primary support at 76. Respect would suggest that a bottom is forming; failure would offer a target of 71*. Twiggs Momentum (21-day) below zero indicates a down-trend, but a higher trough would also suggest a bottom.

* Target calculation: 76 - ( 81 - 76 ) = 71

Tuesday, February 8, 2011...

•   The dollar index this morning is weaker with the dollar/yen -0.14 yen and the euro/dollar +0.63 cents. The dollar index yesterday rallied to a 2-week high as the euro declined on weak German factory orders but gave up most of its gains and finished little changed on reduced safe-haven demand after the stock market rallied to a 2-1/2 year high: Dollar Index +0.012, USDJPY +0.130, EURUSD -0.00041.

                Bullish factors for the dollar included (1) the slump in the euro to a 2-week low against the dollar after Dec German factory orders contracted more than expected, and (2) expectations for strong US economic data this week on US consumer credit and weekly initial jobless claims, which will bolster optimism that the US economic recovery can be sustained.

                Bearish factors included (1) euro supportive comments from ECB Council member Gonzalez-Paramo who said that interest rates would have to rise if inflation doesn't start to decline by the end of the year, and (2) the larger-than -expected increase in the Feb Euro-Zone Sentix investor confidence which rose to a 3-1/4 year high and is euro bullish.

Wednesday, February 9, 2011...

•   The dollar index this morning is little changed with the dollar/yen +0.19 yen and the euro/dollar +0.25 cents. The dollar index yesterday weakened after China raised interest rates and on reduced safe-haven demand for the dollar as the stock market rallied: Dollar Index -0.030, USDJPY +0.043, EURUSD +0.00428.

                Bearish factors for the dollar included (1) the action by China to raise interest rates for the third time since mid-Oct, (2) reduced safe-haven demand for the dollar after the stock market rallied and as tensions eased in Egypt, and (3) hawkish comments from ECB Council member Mersch that lifted the euro when he said policy makers would need to come up with "a rigorous intervention" if higher inflation persists.

                Bullish factors included (1) dollar supportive comments from Richmond Fed President Lacker who said the quickening US recovery means policy makers need to take "quite seriously" their commitment to review the $600 billion asset-purcha se program scheduled to end in June, which suggests he favors ending the QE2 program sooner rather than later, and (2) the unexpected decline in Dec German industrial production, which is euro negative.

Thursday, February 10, 2011...

•   The dollar index this morning is higher with the dollar/yen +0.46 yen and the euro/dollar -1.08 cents. The dollar index yesterday weakened and closed lower after Fed Chairman Bernanke told the House Budget Committee that high US unemployment will persist: Dollar Index -0.358, USDJPY -0.014, EURUSD +0.01072.

                Bearish factors for the dollar included (1) comments from Fed Chairman Bernanke who said the US unemployment rate is likely to remain high "for some time," which is dollar bearish as it may prompt the Fed to keep its quantitative easing measures intact and possibly expand them, and (2) the increase in the 10-year German bund yield to a 1-year high of 3.315%, which benefits the euro's interest rate differentials.

                Bullish factors included (1) the report from Reuters that well-known monetary policy hawk Axel Weber will drop out of the race to succeed Jean-Claude Trichet as head of the ECB, which is euro negative as rate-hike expectations were reduced, and (2 ) comments from Treasury Secretary Geithner who said the US economic "recovery is accelerating" and that the US is growing twice as fast as Europe or Japan.

Friday, February 11, 2011...

•   The dollar index this morning is trading higher and at a 3-week high with the dollar/yen +0.36 yen and the euro/dollar -0.84 cents. The dollar index yesterday rallied on strong US economic data and renewed European sovereign-debt concerns: Dollar Index +0.609, USDJPY +0.868, EURUSD -0.01313.

                Bullish factors for the dollar included (1) the fall in weekly initial US unemployment claims to a 2-1/2 year low, which suggests improvement in the US economy, and (2) weakness in the euro on renewed sovereign-debt concerns after the yield on the 10-year Portuguese bond climbed to 7.64%, the highest since the introduction of the euro in 1999.

                Bearish factors included (1) euro supportive comments from ECB Council member Wellink who said that upside risks to price stability "clearly dominate" in the short term and that Europe's recovery was becoming more self-sustaining, and (2) reduced safe-haven demand for the dollar on speculation that Egyptian President Mubarak woul d shortly bow to protesters' demands and step down as President of Egypt.

US Dollar Index...

The Dollar Index is headed for a test of short-term support at 77 after encountering resistance at 78.50. Twiggs Momentum (21-day) below zero indicates a down-trend, and failure of 77 would test primary support at 76. In the long term, breach of primary support would signal a down-trend, with a target of 71*, while respect would suggest that a bottom is forming.

* Target calculation: 76 - ( 81 - 76 ) = 71

Monday, February 14, 2011...

•   The dollar index this morning is trading higher and at a 3-week high with the dollar/yen -0.01 yen and the euro/dollar -1.00 cent. The dollar index last Friday rallied to a 3-week high on uncertainty in Egypt along with the increase in Feb US consumer confidence: Dollar Index +0.210, USDJPY +0.223, EURUSD -0.00540.

                Bullish factors for the dollar included (1) increased safe-haven demand for the dollar after Egyptian President Mubarak stepped down, which increases uncertainty on who is going to take control in Egypt, (2) weakness in the euro which fell to a 3-week low against the dollar after ECB Council Member and Bundesbank President Weber said he will step down effective Apr 30, which may reduce ECB rate-hike expectations as Weber is a staunch inflation fighter and his absence from the ECB is euro negative, (3) the jump in the Feb US University of Michigan consumer confidence to an 8-month high, which is positive for the US economy and supportive for the dollar.

                Bearish factors included (1) the rally in the S&P 500 Index to a 2-1/2 year high, which reduces the safe-haven demand for the dollar, and (2) hawkish comments from ECB Council member and Bank of France President Noyer who said that "we are not willing to make compromises on second-round effects" of higher inflation to feed through into higher wage demands.

Tuesday, February 15, 2011...

•   The dollar index this morning is trading weaker with the dollar/yen +0.35 yen and the euro/dollar +0.47 cents. The dollar index yesterday pushed up to a 3-week high after the euro weakened when Euro-Zone finance ministers ruled out immediate steps to tackle the debt crisis: Dollar Index +0.154, USDJPY -0.122, EURUSD -0.00586.

                Bullish factors for the dollar included (1) the slump in the euro to a 3-week low against the dollar on renewed concerns over the European sovereign-debt crisis after Reuters reported that a rescue plan for WestLB AG, the German state-owned bank bailed out during the financial crisis, may founder, (2) disagreement among European leaders on debt reduction targets after Ireland's main opposition party said a new Irish government would seek to renegotiate detail's of the country's recent financial bailout and Greece said that demands from the European Union and the IMF that Greece sell state assets to raise as much as 50 billion euros by 2015 to pay down debt were "unacceptable."

                Bearish factors included (1) strength in the yen against the dollar after Japan's Q4 GDP contracted less than expected, and (2) dollar negative comments from New York Fed President Dudley who said that he backs continued Fed asset purchases to "help ease financial conditions" and stimulate economic growth.

Wednesday, February 16, 2011...

•   The dollar index this morning is trading lower with the dollar/yen +0.03 yen and the euro/dollar +0.17 cents. The dollar index yesterday closed slightly lower as weaker-than-expected US retail sales and an increase in German investor confidence undercut support for the dollar: Dollar Index -0.041, USDJPY +0.446, EURUSD -0.00014.

                Bearish factors for the dollar included (1) the increase in the Feb German ZEW investor confidence to a 7-month high, which is euro supportive, and (2) the weaker-than-expected Jan US retail sales, which is dollar negative.

                Bullish factors included (1) the weaker-than-expected Q3 Euro-Zone GDP, which is euro negative, and (2) the larger than expected increase in the Dec net long-term TIC flows, which shows continued strong foreign demand for US dollar assets.

Thursday, February 17, 2011...

•   The dollar index this morning is trading little changed with the dollar/yen -0.07 yen and the euro/dollar -0.12 cents. The dollar index yesterday weakened on reduced safe-haven demand for the dollar as global stock markets rallied on optimism the global economic recovery can continue: Dollar Index -0.350, USDJPY -0.096, EURUSD +0.00816.

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after the S&P 500 climbed to a 2-1/2 year high, (2) comments from an unnamed German government official that the G-20 will discuss ways of diversifying global currency reserves when they meet this weekend in Paris, which may lead to reduced demand for dollars or a reduction in the dollar's status as the world's reserve currency.

                Bullish factors included (1) stronger-than-expected US economic data on Jan housing starts and Jan producer prices, and (2) data from the IMF that shows Greek and Irish banks have issued at least 70 billion euros ($95 billi on) of bonds to create the collateral required to get cash from the ECB, which is a form of quantitative easing and euro negative as the banks are basically issuing unsecured loans to themselves.

US Dollar Index...
The Dollar Index encountered resistance at 79, suggesting that the correction will continue. Failure of medium-term support at 77 would confirm. Twiggs Momentum (21-day) completion of a peak below zero would warn of continuation of the primary down-trend. Breach of support at 76 would confirm, offering a target of 71*. Respect of 76 is less likely, but would indicate that a bottom is forming.

* Target calculation: 76 - ( 81 - 76 ) = 71

Friday, February 18, 2011...

•   The dollar index this morning is trading higher with the dollar/yen +0.10 yen and the euro/dollar -0.54 cents. The dollar index yesterday closed lower for a third day as Treasury yields weakened and US jobless claims rose more than expected: Dollar Index -0.233, USDJPY -0.369, EURUSD +0.00400.

                Bearish factors for the dollar included (1) the drop in Treasury yields to a 2-week low, which weakens the dollar's interest rate differentials and reduces demand for dollar assets, (2) the larger-than-expected increase in weekly US jobless claims, which indicates a struggling labor market that may prompt the Fed into additional stimulus at the expense of the dollar, (3) strength in the British pound which rallied to a 2-week high against the dollar after BOE policy maker Sentance said the BOE should raise interest rates to boost the pound as a means of curbing inflation, and (4) reduced safe-haven demand for the dollar after the S&P 500 climbed to a 2-1/2 year high.

                Bullish factors included (1) comments from Portuguese government minister Pereira who said that delay in an "effective" European response to the "turbulence" in sovereign debt markets hurts the euro, and (2) a possible increase in the safe-haven demand for the dollar after Iran said it is sending 2 warships through the Suez Canal, which risks an Iranian confrontation with Israel.

Tuesday, February 22, 2011...

•   The dollar index this morning is trading higher with the dollar/yen -0.04 yen and the euro/dollar +0.01 cent. The dollar index last Friday slid to a 1-week low and settled lower after an ECB Council member said interest rates may need to be raised to combat inflation: Dollar Index -0.331, USDJPY -0.201, EURUSD +0.00764.

               Bearish factors for the dollar included (1) the rally in the euro to a 1-week high against the dollar after ECB Executive Board member Smaghi said the ECB may need to raise interest rates as global inflation pressures mount, and (2) strength in the British pound which climbed to a 2-week high against the dollar after Jan UK retail sales rose by almost four times expectations.

               Bullish factors included (1) the unexpected decline in Feb France business confidence, which is euro negative, and (2) comments from former Japanese vice finance minister Gyohten who said the dollar won't lose its status as the world's reserve currency as it will take China 10 to 15 years to complete the financial reforms needed for the yuan to be included in the IMF's foreign-exchange basket.

Wednesday, February 23, 2011...

•   The dollar index this morning is trading lower with the dollar/yen +0.20 yen and the euro/dollar +0.87 cents. The dollar index yesterday closed higher but well off its best levels after strong safe-haven demand for the dollar was offset by hawkish comments from an ECB official: Dollar Index +0.079, USDJPY -0.337, EURUSD -0.00348.

                Bullish factors included (1) increased safe-haven demand for the dollar as violent protests escalated in Libya, (2) the action by Moody's Investors Service to lower the outlook on Japan's Aa2 debt rating to negative from stable, which is yen negative, (3) the unexpected increase in Feb US consumer confidence to a 3-year high, which is dollar supportive, and (4) the prediction from the head of Germany's Ifo research institute that Greece is likely to be forced to restructure its debt because EU governments won't flood Greece with financial aid, that exiting the euro would wreck Greece's banking system, and a 20% to 30% cut in domestic wages in Greece to restore competitiveness would trigger civil disorder.

                Bearish factors for the dollar included (1) hawkish comments from ECB Council member Mersch who said ECB officials may toughen their language on inflation when they meet next week, which suggests the ECB may be ready to raise interest rates in the near future, and (2) the larger-than-expected decline in Dec S&P/CaseShiller composite-20 home price index which showed US home prices fell -2.4% y/y, their biggest year-over-year decline in a year, and signals continued weakness in the US housing market.

Thursday, February 24, 2011...

•   The dollar index this morning is trading weaker and at a 3-week low with the dollar/yen -0.68 yen and the euro/dollar +0.19 cents. The dollar index yesterday slipped to a 2-1/2 week low and settled lower on speculation that the BOE and ECB will hike interest rates before the Fed: Dollar Index -0.359, USDJPY -0.261, EURUSD +0.00978.

                Bearish factors included (1) strength in the British pound which rose to a 2-1/2 week high against the dollar after the minutes of the Feb 10 BOE policy meeting showed BOE policy maker Dale joined fellow policy members Sentance and Weale in voting for an interest rate increase, (2) speculation that the ECB may be ready to raise interest rates after ECB President Trichet said that policy makers will make the decisions "necessary to maintain price stability," and (3) the unexpected increase in Dec Euro-Zone industrial new orders, which is euro supportive.

                Bullish factors included (1) increased safe-haven demand for the dollar as the stock market slumped on continued unrest in North Africa and the Middle East, (2) the unexpected increase in the Jan existing home sales to their best level in 8 months, which is dollar supportive, and (3) comments from Philadelphia Fed President Plosser who said he "won't rule out" an early exit to the Fed's quantitative easing program if the economy strengthens.

Friday, February 25, 2011...

•   The dollar index this morning is trading higher with the dollar/yen unchanged and the euro/dollar -0.13 cents. The dollar index yesterday fell to a 3-week low on concerns the surge in energy prices will slow the US economy along with hawkish comments from ECB Council member Weber: Dollar Index -0.352, USDJPY -0.620, EURUSD +0.00517.

                Bearish factors included (1) concern that the jump in crude prices to a 2-1/3 year high will derail the US economic recovery, and (2) strength in the euro which climbed to a 3-week high against the dollar after ECB Council member Weber said "interest rates know only one direction, and that is north," which hints the ECB may be preparing the markets for an interest rate hike.

                Bullish factors included (1) increased safe-haven demand for the dollar as the stock market slumped on continued unrest in North Africa and the Middle East, and (2) comments from St. Louis Fed President Bullard who said that since November the risk of deflati on has fallen and inflation expectations have increased, which may merit a reduction in the Fed's QE 2 asset-purchase program.

Gold tests resistance as dollar weakens

US Dollar Index...
The Dollar Index is testing medium-term support at 77 and failure would threaten primary support at 76. Completion of a Twiggs Momentum (21-day) peak below zero would warn of continuation of the primary down-trend. Breach of primary support would offer a target of 71*.

Target calculation: 76 - ( 81 - 76 ) = 71

Monday, February 28, 2011...

•   The dollar index this morning is trading weaker and slumped to a 3-1/2 month low with the dollar/yen +0.20 yen and the euro/dollar +0.74 cents. The dollar index last Friday rebounded from a 3-week low and finished higher on hawkish comments from Richmond Fed President Lacker: Dollar Index +0.197, USDJPY -0.224, EURUSD -0.00470.

                Bullish factors included (1) comments from Richmond Fed President Lacker who said an early end to the Fed's QE2 asset-purchase program may be needed to limit inflation pressures, and (2) weakness in the British pound which fell to a 1-week low against the dollar after UK Q4 GDP was unexpectedly revised lower.

                Bearish factors included (1) the larger-than-expected downward revision to US Q4 GDP, (2) comments from French Finance Minister Lagarde who said that Spain's finances have improved and the country won't need a bailout, and (3) the action by Morgan Stanley to raise its Q1 target for the euro to $1.32 from $1.25 and to raise its year-end tar get for the euro against the dollar to $1.24 from $1.20, citing increased rhetoric from the ECB about the need for tighter monetary policy to combat inflation.

Tuesday, March 1, 2011...

•   The dollar index this morning is trading weaker and at a fresh 3-1/2 month low with the dollar/yen +0.29 yen and the euro/dollar +0.13 cents. The dollar index yesterday slumped to a 3-1/2 month low and finished lower on speculation that Fed Chairman Bernanke on Tuesday will signal the Fed will keep interest rates at a record low: Dollar Index -0.378, USDJPY +0.117, EURUSD +0.00532.

                Bearish factors included (1) strength in the euro on concern that rising inflation pressures will prompt the ECB to raise interest rates after Jan French producer prices rose +5.6% y/y, the fastest pace in 2-1/3 years and Jan Euro-Zone CPI rose +2.3% y/y, its fastest pace in 2-1/4 years, and (2) speculation that Fed Chairman Bernanke on Tuesday in his semiannual report on monetary policy to Congress will signal the Fed will keep interest rates at a record low for the foreseeable future.

                Bullish factors included (1) the surge in the Feb Chicago purchasing managers index to its best level in 22-1/2 years, which signals strength in the economy, and increased safe-haven demand for the dollar on concern the turmoil in the Middle East is spreading after civil unrest was reported in Oman.

US Dollar Index...

The Dollar Index is testing medium-term support at 77 and failure would threaten primary support at 76. Breach of primary support would offer a target of 71*. Recovery above 79, however, would complete a double bottom and suggest a rally

* Target calculation: 76 - ( 81 - 76 ) = 71

Wednesday, March 2, 2011...

•   The dollar index this morning is trading lower with the dollar/yen +0.10 yen and the euro/dollar +0.48 cents. The dollar index yesterday rebounded from a 3-1/2 month low and finished higher on strong US manufacturing data along with increased safe-haven demand on concern the civil unrest in the Middle East is spreading: Dollar Index +0.160, USDJPY +0.074, EURUSD -0.00288.

                Bullish factors included (1) the stronger-than-expected Feb US ISM manufacturing index which matched its 27-year high from May-2004 and signals US economic strength, (2) increased safe-haven demand for the dollar on concern the turmoil in the Middle East is spreading to Iran, and (3) comments from Fed Chairman Bernanke who said that rising oil and commodity prices won't derail the economic recovery.

                Bearish factors included (1) strength in the euro after the European Commission revised up their 2011 GDP and inflation forecasts for the Euro-Zone, which will keep pressure on the ECB to tighten monetary policy, and (2) strength in the British pound which surged to a 13-month high against the dollar after Feb UK PMI manufacturing remained unchanged at its best level since 1992, which may prompt the BOE to increase interest rates.

Thursday, March 3, 2011...

•   The dollar index this morning is trading little changed with the dollar/yen -0.03 yen and the euro/dollar -0.09 cents. The dollar index yesterday sank to a 3-3/4 month low and closed lower as a surge in oil prices threatens economic growth: Dollar Index -0.378, USDJPY +0.010, EURUSD +0.00878.

                Bearish factors included (1) a rally in crude oil to near a 2-1/2 year high, which threatens to derail economic growth, (2) comments from Fed Chairman Bernanke who said a "sustained period of strong job creation" is needed to ensure a solid recovery and that interest rates will stay low for an "extended period," which signal's the Fed will not raise interest rates anytime soon and that spurred inflation concerns and weakens the dollar's interest rate differentials, and (3) strength in the euro which climbed to a 3-3/4 month high against the dollar after the Jan Euro-Zone PPI accelerated to its fastest pace of increase in 2-1/3 years.

                Bullish factors included ( 1) renewed European sovereign-debt concerns that are bearish for the euro after Standard & Poor's kept ratings on Greece's and Portugal's debt credit watch negative, saying both countries debt ratings remain at risk of being cut on concern about how a European Union rescue fund may affect holders of the two nations' sovereign bonds, and (2) the prediction from Axa Investment Managers that Portugal will accept a financial bailout "within the next few weeks" as the cost of issuing debt becomes unsustainable.

Friday, March 4, 2011...

•   The dollar index this morning is trading little changed with the dollar/yen +0.21 yen and the euro/dollar +0.01 cents. The dollar index yesterday fell to a 3-3/4 month low but closed well off of its worst levels after ECB President Trichet hinted at raising interest rates as soon as next month: Dollar Index -0.197, USDJPY +0.579, EURUSD +0.01035.

                Bearish factors included (1) hawkish comments from ECB President Trichet which boosted the euro when he said "strong vigilance is warranted" and an "increase of interest rates in the next meeting is possible," (2) stronger-than-expected Jan German retail sales and Jan Euro-Zone retail sales, which are euro bullish, and (3) dovish comments from Minneapolis Fed President Kocherlakota who said the Fed's "highly accommodative" policy is warranted given a natural rate of unemployment that may range between 5.8% and 8.9%.

                Bullish factors included (1) strong US economic data on weekly jobless and Feb IS M non-manufacturing activity, which shows economic strength, and (2) the unexpected downward revision to the Feb Euro-Zone PMI composite index, which is euro negative.

Monday, March 7, 2011...

•   The dollar index this morning is trading weaker and at a 4-month low with the dollar/yen -0.23 yen and the euro/dollar +0.37 cents. The dollar index last Friday fell to a 4-month low but closed only slightly lower after Fitch Ratings revised down its outlook on Spain's debt rating: Dollar Index -0.126, USDJPY -0.126, EURUSD +0.00166.

                Bearish factors included (1) the surge in crude oil to a 2-1/2 year high, which threatens US economic growth and may prompt the Fed into maintaining its overly easy monetary policy, and (2) the action by Rabobank Group to raise its 3-month target for the euro against the dollar to $1.42 from a previous forecast of $1.40, citing increased hawkishness from the ECB.

                Bullish factors included (1) strong US economic data after the Feb US unemployment rate unexpectedly declined to a 1-3/4 year low and Jan factory orders increased by the most in 4-1/4 years, which indicates economic strength, and (2) the action by Fitch Ratings to revise its outl ook on Spain's debt rating to negative from stable, which is euro bearish, as it cited the potential cost of rescuing its savings banks and risks to the economic recovery.

Tuesday, March 8, 2011...

•   The dollar index this morning is trading higher with the dollar/yen +0.35 yen and the euro/dollar -0.62 cents. The dollar index yesterday slid to a 4-month low but recovered its losses and finished slightly higher after the euro weakened on renewed European sovereign-debt risks: Dollar Index +0.096, USDJPY -0.079, EURUSD -0.00178.

                Bullish factors included (1) weakness in the euro on rising sovereign-debt concerns after Moody's Investor's Service cut Greece's credit rating three steps to B1, citing the rising risk of default along with the surge in Ireland's 10-year bond yield to 9.477%, the highest since 1993, after the incoming Irish government said it may need to introduce new laws to allow the restructuring of some senior bank bonds, as the country's debt level risks becoming "unsustainable," and (2) increases safe-haven demand for the dollar as the stock market tumbled.

                Bearish factors included (1) the surge in crude oil to a 2-1/2 year high, which threa tens US economic growth and may prompt the Fed into maintaining its overly easy monetary policy, (2) the increase in the March Euro-Zone Sentix investor confidence to a 3-1/2 year high, which is euro supportive, and (3) the statement from Morgan Stanley that it is no longer "bearish" on the euro given the outlook for the ECB to raise interest rates this year and next as they revised up their 2011 year-end forecast for the euro to $1.45 from an earlier forecast of $1.24.

Wednesday, March 9, 2011...

•   The dollar index this morning is trading slightly weaker with the dollar/yen +0.02 yen and the euro/dollar +0.31 cents. The dollar index yesterday strengthened on increased safe-haven demand after the euro fell back on concern the European sovereign-debt crisis will worsen: Dollar Index +0.096, USDJPY -0.079, EURUSD -0.00178.

                Bullish factors included (1) weakness in the euro after the yield on the 10-year Greek bond jumped 51 bp to 12.84%, the highest since Bloomberg data began in 1988, on weak demand for a Greek T-bill auction, and (2) weakness in the British pound which fell to a 1-week low against the dollar after Feb UK retail sales declined and home prices fell, which cut expectations for BOE rate hikes this year.

                Bearish factors included (1) the stronger-than-expected Jan German factory orders, which is euro bullish, and (2) comments from ECB Council member Weber who said he "doesn't want to correct market expectations" for as many as three quarter poi nt increases in the 2-week refinancing rate to 1.75% this year, and (3) the action by Danske Bank A/S to raise their 6-month forecast for the euro to $1.50 from $1.42, citing the outlook for ECB rate hikes.

Thursday, March 10, 2011...

•   The dollar index this morning is trading stronger and at a 1-week high with the dollar/yen +0.19 yen and the euro/dollar -0.67 cents. The dollar index yesterday fell back on concern rising fuel costs will derail the US economy along with strength in the euro on speculation the ECB will buy the bonds of the Euro-Zone's most indebted nations: Dollar Index -0.077, USDJPY +0.070, EURUSD +0.00042.

                Bearish factors included (1) concern the recent surge in energy prices will derail the US economy and prompt the Fed into maintaining its overly easy monetary policy, (2) speculation the ECB will purchase the bonds of its most indebted nations after the yields on Portuguese debt climbed to a record, and (3) the larger-than-expected increase in Jan German industrial production, which is euro bullish.

                Bullish factors included (1) increased safe-haven demand for the dollar after the managing director of European sovereign ratings at Standard & Poor's warned some countries in the Euro-Zone might have their credit ratings cut further while a Greek debt default is a "possibility," and (2) concern the European sovereign-debt crisis will worsen after weak demand for a government auction of Portuguese debt sent the yield on Portugal's 10-year bond soaring to 7.70%, the highest since data began in 1997.

Friday, March 11, 2011...

•   The dollar index this morning is trading higher and at a 1-1/2 week high with the dollar/yen -0.67 yen and the euro/dollar -0.04 cents. The dollar index yesterday rallied to a 1-1/2 week high on concern the European sovereign-debt crisis may worsen: Dollar Index +0.555, USDJPY +0.239, EURUSD -0.01114.

                Bullish factors included (1) increased safe-haven demand for the dollar after global stock markets slumped when Moody's Investors Service cut Spain's credit rating by one level to Aa2, saying the government has underestimated the cost of shoring up the banking industry, and (2) weakness in the euro which fell to a 1-week low against the dollar on concern that European debt risks are rising after the cost to insure Spain's government bonds rose to a 1-month high, while the cost to insure Portugal's debt rose to a 2-month high and the cost to insure Greek debt climbed to a record high.

                Bearish factors included (1) the larger-than-expected Jan US trade balance which widened by the most in 7 months and is dollar negative, and (2) the larger-than-expected increase in weekly US jobless claims, which may prompt the Fed to maintain its overly easy monetary policy as the US labor market continues to struggle.

Monday, March 14, 2011...

•The dollar index this morning is weaker with the dollar/yen +0.17 yen and the euro/dollar +0.60 cents. The dollar index last Friday retreated from a 1-1/2 week high and closed lower as the euro strengthened from hawkish ECB comments and the yen strengthened on safe-haven demand following Japan's earthquake and on speculation companies will repatriate yen back to Japan to pay for quake damages: Dollar Index -0.500, USDJPY +1.088, EURUSD +0.01054.

                Bearish factors included (1) hawkish comments from ECB Council member Bini Smaghi who said new inflation forecasts "are based on market prices" and the ECB rate policy must adapt to increasing inflation pressures, which suggests he favors an immediate rate hike by the ECB, and (2) strength in the yen on increased safe-haven demand following the Japanese earthquake along with speculation that insurance companies will buy the yen to pay for damages from the 8.9-magnitude quake.

                Bullish factors included (1) strength in Feb US retail sales which gained the most in four months, and (2) infighting between EU leaders on how to fix the European sovereign-debt crisis, which is negative for the euro, after Irish Prime Minister Kenny rebuffed German Chancellor Merkel's conditions on easing bailout terms.

Tuesday, March 15, 2011...

•The dollar index this morning is stronger with the dollar/yen -0.26 yen and the euro/dollar -1.10 cents. The dollar index yesterday weakened for a second day after European Union leaders agreed over the weekend to expand the scope of their rescue fund in an attempt to quell the European debt crisis: Dollar Index -0.427, USDJPY -0.259, EURUSD +0.00894.

                Bearish factors included (1) strength in the euro after EU leaders over the weekend agreed to expand the scope of their rescue fund and allow officials to buy debt in primary markets, while also cutting the cost of bailout loans to Greece by extending the repayment period of Greek loans to 7-1/2 years from 3 years, and (2) early strength in the yen which rallied to a 4-monh high against the dollar on speculation Japanese domestic investors will repatriate yen back to Japan to pay for earthquake and tsunami damages.

                Bullish factors included (1) weakness in the yen which retreated from a 4-month high after the BOJ pumped a record 15 trillion yen ($183 billion) into money markets and doubled the size of its asset-purchase program in an attempt to stabilize financial markets which were hammered following the Japanese earthquake, and (2) increased safe-haven demand for the dollar after global equity markets tumbled.

Wednesday, March 16, 2011...

•The dollar index this morning is higher with the dollar/yen -0.20 yen and the euro/dollar -0.55 cents. The dollar index yesterday rallied on increased safe-haven demand after global equity markets plunged along with the unexpected decline in German economic sentiment but gave up all of their gains when the Fed reaffirmed their plan to buy $600 billion of Treasuries through June: Dollar Index -0.021, USDJPY -0.911, EURUSD +0.00066.

                Bearish factors included (1) strength in the yen on speculation that insurers will repatriate dollar and euro assets back to yen to pay for earthquake damages, (2) the smaller-than-expected increase in Jan net long-term TIC flows, which indicates weakened foreign demand for US dollar assets, (3) the plunge in Treasury yields with the 10-year T-note yield falling to a 3-month low, which weakens the dollar's interest rate differentials, and (4) the post-FOMC statement in which the Fed reaffirmed its plan to buy $600 billion of Treasuries through June.

                Bullish factors included (1) increased safe-haven demand for the dollar after global stock markets plunged on fears of a Japanese nuclear disaster, (2) euro weakness after Mar German ZEW economic sentiment unexpectedly declined, and (3) comments from ECB President Trichet who said the package of economic-oversight rules adopted by EU finance ministers was "insufficient."

Thursday, March 17, 2011...

•   The dollar index this morning is weaker and trading at a 4-1/4 month low with the dollar/yen -1.18 yen and the euro/dollar +1.20 cents. The yen soared in overnight trade and posted a new post WWII high of 76.36 per dollar. The dollar index yesterday settled slightly lower as euro weakness from Moody's downgrade of Portugal's credit rating was offset by a rally in the yen to a new post-WWII high: Dollar Index -0.049, USDJPY -1.128, EURUSD -0.00999.

                Bearish factors included (1) strength in the yen which rallied to a new post WWII high against the dollar of 76.36 on speculation that insurers will repatriate dollar and euro assets back to yen to pay for earthquake damages along with strong demand for yen by banks after the yen libor rate rose 38 bp to 0.491%, a 2-year high, and (2) the 2.4% increase in Feb Euro-Zone CPI, a 2-1/4 year high, along with the larger-than-expected rise in Q4 Euro-Zone labour costs, which is euro positive as the data will keep the pressure on th e ECB to raise interest rates.

                Bullish factors included (1) euro weakness after Moody's Investors Service cut Portugal's long-term credit rating 2 levels to A3 from A1 and kept a negative outlook, which implies further downgrades in the future, and (2) the action by the BOJ to add 5 trillion yen into the financial system on top of the 28 trillion yen already injected into the system since Mar 14, which is yen negative.

Friday, March 18, 2011...

•               The dollar index this morning is weaker with the dollar/yen +2.55 yen and the euro/dollar +1.09 cents. The yen plunged in overnight trade after the G-7 central agreed to sell the yen in currency markets in coordinated intervention. The dollar index yesterday sank to a 4-1/4 month low and finished lower as the yen surged on speculation there will be no currency intervention before Friday's G-7 meeting: Dollar Index -0.640, USDJPY -0.694, EURUSD +0.01223.

                Bearish factors included (1) strength in the yen which rallied to a new post WWII high against the dollar of 76.36 as Japan's quake crisis prompted increased safe-haven demand for yen along with speculation that insurers will repatriate dollar and euro assets back to yen to pay for earthquake damages and reconstruction, and (2) reduced safe-haven demand for the dollar as the stock market rallied.

                Bullish factors included (1) the action by the G-7 nations to call for an emergency meeting on Friday, which may lead to some form of coordinated intervention to curb the yen’s gains, and (2) stronger-than-expected US economic data on weekly jobless claims and the Mar Philadelphia Fed manufacturing index, which signals economic strength and is positive for the dollar.

Monday, March 21, 2011...

•               The dollar index this morning is weaker with the dollar/yen +0.68 yen and the euro/dollar -0.13 cents. The dollar index last Friday tumbled to a 4-1/2 month low and finished lower on reduced safe-haven demand for the dollar after the stock market rallied and as Libya ordered a halt to its military action against rebel forces: Dollar Index -0.238, USDJPY +1.692, EURUSD +0.01606.

                 Bearish factors included (1) reduced safe-haven demand for the dollar after the stock market rallied, (2) reduced safe-haven demand for the dollar after Libya ordered a halt to all military operations against rebel forces, and (3) strength in the euro which climbed to a 4-1/2 month high against the dollar after ECB President Trichet said he doesn't want to change his hawkish stance on "strong vigilance" on inflation that he gave earlier this month, which fuels speculation the ECB still plans to raise interest rates next month.

                Bullish factors included (1) the action by the G-7 nations to announce coordinated currency intervention to weaken the yen, and (2) the plunge in Feb UK nationwide consumer confidence to its lowest level since data began in 2004, which is negative for the British pound.

Tuesday, March 22, 2011...

•               The dollar index this morning is weaker and trading at a fresh 1-1/4 year low with the dollar/yen -0.10 yen and the euro/dollar +0.15 cents. The dollar index yesterday slumped to a 1-1/4 year low and finished weaker on reduced safe-haven demand for the dollar after the stock market rallied along with hawkish rhetoric from the ECB: Dollar Index -0.317, USDJPY +0.440, EURUSD +0.04400.

                Bearish factors included (1) reduced safe-haven demand for the dollar after the stock market rallied, (2) hawkish comments from ECB Executive Board member Tumpel-Gugerell that lifted the euro to a 4-1/2 month high against the dollar after she reiterated ECB President Trichet's mantra that "strong vigilance" is necessary to keep a lid on inflation, which shows a consensus building among ECB policy makers for an interest rate hike as soon as next month's policy meeting, and (3) the weaker-than-expected Feb US existing home sales, which may prompt the Fed into keeping its overly easy monetary policy in place for the foreseeable future and further weaken the dollar's interest rate differentials.

                Bullish factors included (1) weakness in the yen on fears of further G-7 currency intervention, and (2) the announcement by the Treasury that it will wind down its $142 billion portfolio of MBS securities by $10 billion a month starting this month, which is dollar positive as it shows the Treasury reducing the size of its balance sheet.

Wednesday, March 23, 2011...

•               The dollar index this morning is little changed with the dollar/yen -0.20 yen and the euro/dollar -0.33 cents. The dollar index yesterday recovered from a 1-1/4 year low and finished little changed as the euro weakened on concern that European leaders cannot agree on a solution to the region's debt crisis: Dollar Index +0.033, USDJPY -0.060, EURUSD -0.00291.

                 Bullish factors included (1) weakness in the euro which fell from a 4-1/2 month high against the dollar on sovereign-debt concerns after the yield on Irish 2-year notes surged to 10.18%, the highest since Bloomberg began collecting the data, as Germany and France demand that Ireland raise its corporation tax rate in return for better terms on loans from the European Financial Stability Facility bailout fund, and (2) dollar friendly comments from Dallas Fed President Fisher who said there will be "no need for further monetary accommodation" in the US once the Fed's QE2 program ends in June.

                 Bearish factors included (1) the rally in the British pound to a 14-month high against the dollar on increased speculation the BOE will soon raise interest rates after Feb UK CPI rose at its fastest pace in 2-1/4 years, and (2) strong demand for euros from European banks after the 3-month Euribor rate, the rate at which Euro-Zone banks borrow between each other, rose 6 bp to a 1.185%, its highest level in 1-3/4 years.

Thursday, March 24, 2011...

•               The dollar index this morning is weaker with the dollar/yen +0.10 yen and the euro/dollar +0.35 cents. The dollar index strengthened yesterday and closed higher on concern Europe's sovereign-debt crisis may worsen: Dollar Index +0.360, USDJPY -0.055, EURUSD -0.01096.

                Bullish factors included (1) weakness in the euro after EU finance minister leader Juncker said the EU won't decide to expand the European Financial Stability Facility until June, dousing expectations for a resolution to the expansion of the bailout fund as soon as this weekend's EU summit, (2) weakness in the pound after the minutes of the Mar 10 BOE monetary policy meeting showed policy makers voted 6-3 to keep interest rates on hold along with the cut in Britain's 2011 GDP estimate to 1.7% from a Nov estimate of 2.1% by England's Office for Budget Responsibility, and (3) concern the European debt crisis will worsen after the yield on the 10-year Irish note exceeded 10% for the first time since the euro was introduced in 1999 and the yield on Portugal's 5-year bond rose to a record 8.14%.

                Bearish factors included (1) the unexpected plunge in Feb US new home sales to a record low, which may prompt the Fed to maintain its overly easy monetary policy at the dollar's expense, and (2) hawkish comments from ECB Executive Board member Smaghi who said that interest rates in the Euro-Zone are currently lower than the inflation rate and that keeping them at that level would be "very expansionist," which suggests he favors a rate hike as soon as next month.

Friday, March 25, 2011...

•               The dollar index this morning is slightly higher with the dollar/yen +0.30 yen and the euro/dollar -0.07 cents. The dollar index closed lower yesterday as the euro strengthened on speculation that European leaders will come up with a solution to the region's debt crisis as they begin a 2-day meeting in Brussels: Dollar Index -0.138, USDJPY +0.063, EURUSD +0.00908.

                Bearish factors included (1) strength in the euro on anticipation that EU leaders will come up with a solution to the European debt crisis, and (2) heightened speculation that the ECB will raise interest rates when it meets next on Apr 7, which would further improve the euro's interest rate differentials against the dollar.

                Bullish factors included (1) concern the European sovereign-debt crisis will worsen after European officials speculated that a bailout of Portugal would cost as much as 70 billion euros ($99 billion), (2) the action by Moody's Investors Service to cut the ratings on 30 Spanish banks to reflect Spain's sovereign downgrade, and (3) weakness in the British pound which retreated against the dollar after Feb UK retail sales came in weaker than expected.

US Dollar Index...
The US Dollar retraced to test the new resistance level at 76; respect would signal a decline to 71* — a bullish sign for gold. Twiggs Momentum well below zero suggests the down-trend will continue.

* Target calculation: 76 - ( 81 - 76 ) = 71

Monday, March 28, 2011...

•   The dollar index this morning is higher and at a 1-week high with the dollar/yen +0.34 yen and the euro/dollar -0.34 cents. The dollar index last Friday settled higher on concern about European government efforts to end the region's debt crisis: Dollar Index +0.561, USDJPY +0.362, EURUSD -0.00891.

                Bullish factors included (1) weakness in the euro on concern European leaders lack the resolve to quell the region's debt crisis after EU leaders caved in to German demands to cut the amount of startup capital for a program for future emergency aid, and (2) dollar supportive comments from Philadelphia Fed President Plosser who said the improving economy means the Fed should set a pace for selling its mortgage and Treasury holdings in conjunction with raising interest rates.

                Bearish factors included (1) the smaller-than-expected decline in Mar IFO business confidence, which is euro positive, (2) supportive interest rate differentials for the euro with the 3-month Euribor rate rising to a 1-3/4 year high of 1.203%, and (3) the plunge in Mar U.S. University of Michigan consumer confidence to a 16-month low, which is dollar negative.

Tuesday, March 29, 2011...

•   The dollar index this morning is little changed with the dollar/yen +0.43 yen and the euro/dollar -0.10 cents. The dollar index yesterday rallied to a 1-week high but shed its gains and closed slightly lower after hawkish comments from ECB President Trichet boosted the euro: Dollar Index -0.025, USDJPY +0.035, EURUSD -0.00016.

                Bearish factors included (1) euro supportive comments from ECB President Trichet who said "inflation rates are durably above the price stability target," which nearly cements an April interest rate hike from the ECB, and (2) hawkish comments from ECB Council member Quaden who said a "moderate" increase in interest rates won't stifle the economic recovery.

                Bullish factors included (1) comments from St. Louis Fed President Bullard who said that policy makers should review halting the $600 billion QE2 asset-purchase program before its June completion because the economy may not require that much stimulus, and (2) stronger-than-e xpected US economic data on Feb personal spending and Feb pending home sales, which signals economic strength and is dollar supportive.

Wednesday, March 30, 2011...

•   The dollar index this morning is stronger with the dollar/yen +0.64 yen and the euro/dollar -0.21 cents. The dollar index yesterday finished slightly higher as rising European sovereign-debt risks and weakness in the yen outweighed the prospects of an ECB rate hike next week: Dollar Index +0.121, USDJPY +0.781, EURUSD +0.00258. The yen posted a 2-week low against the dollar.

                Bullish factors included (1) the action by Standard & Poor's to cut Portugal's sovereign credit rating to BBB-, the lowest investment grade, and to cut Greece's rating 2 grades to BB-, 3 levels below investment grade, on concern that new EU bailout rules will force both countries to renege on their debt obligations, and (2) comments from St. Louis Fed President Bullard who said the Fed might need to tighten monetary policy before the outlook for the global economy clears up later this year.

                Bearish factors included (1) hawkish comments from ECB Council member Makuch who said it is "highl y probable" that the ECB will raise interest rates next week, which would further strengthen the euro's interest rate differentials, and (2) the weaker-than-expected Mar US consumer confidence, which is dollar negative.

Thursday, March 31, 2011...

•   The dollar index this morning is lower with the dollar/yen -0.03 yen and the euro/dollar +0.84 cents. The dollar index yesterday finished weaker as a rally in stocks reduced the safe-haven demand for the dollar along with the prospects for the dollar's interest rate differentials to weaken further on the near certainty of an ECB interest rate hike next week: Dollar Index -0.131, USDJPY +0.418, EURUSD +0.00144.

                Bearish factors included (1) market expectations of an Apr 7 interest rate hike by the ECB, which will further strengthen the euro's interest rate differentials against the dollar, and (2) reduced safe-haven demand for the dollar as global stock markets rallied on increased economic optimism.

                Bullish factors included (1) weakness in the yen as Japan's quake crisis may prompt the BOJ to keep an overly easy monetary policy that will further weaken the yen's interest rate differentials against the dollar, and (2) euro negative comments from ECB Council member Bini Smaghi who said the risk of the European sovereign-debt crisis spreading to other EU nations is "not insignificant."

US Dollar Index...
The US Dollar Index retraced to test resistance, but is now weakening. Reversal below 76 would signal a decline to 71* — a bullish sign for gold. Twiggs Momentum holding below zero suggests the down-trend will continue.

* Target calculation: 76 - ( 81 - 76 ) = 71

Friday, April 1, 2011...

•   The dollar index this morning is stronger with the dollar/yen +0.56 yen to a 1-1/2 month high and the euro/dollar -0.05 cents. The dollar index yesterday settled lower after the euro strengthened when Mar Euro-Zone inflation unexpectedly accelerated: Dollar Index -0.261, USDJPY +0.241, EURUSD +0.00304.

                Bearish factors included (1) the unexpected jump in the Mar Euro-Zone CPI estimate to +2.6% y/y, a 29-month high which lifted the euro and bolstered the case for an ECB interest rate hike next week, and (2) the larger than expected decline in Mar German unemployment to its lowest level since 1992, which is euro supportive.

                Bullish factors included (1) concern the European sovereign-debt crisis may worsen after credit-default swaps on Portuguese government debt rose 13 bp to a record 579 bp while default swaps on Irish government bonds rose 8 bp to a 2-1/2 month high of 633 bp, and (2) the smaller than expected decline in the Mar Chicago purchasing managers index, which shows economic strength and is dollar supportive.

Monday, April 4, 2011...

•   The dollar index this morning is slightly higher with the dollar/yen +0.10 yen and the euro/dollar -0.22 cents. The dollar index last Friday jumped to a 2-week high after Mar US payrolls were reported stronger than expected but then erased its gains and finished slightly lower after dovish comments from New York Fed President Dudley: Dollar Index -0.024, USDJPY +0.930, EURUSD +0.00770.

                Bearish factors included (1) comments from New York Fed President Dudley who said not to be "overly optimistic about the growth outlook," which signals he is not in favor of tightening Fed policy, and (2) reduced safe-haven demand for the dollar after the S&P 500 rallied to a 1-1/4 month high.

                Bullish factors included (1) strong US economic data on Mar manufacturing and employment which signals a faster pace of economic growth that may prompt the Fed into raising interest rates, (2) concern the European sovereign-debt crisis may worsen after Standard & Poor's cut Irela nd's credit rating after the cost of rescuing Irish banks rose to as much as 100 billion euros ($141.5 billion) and Fitch Ratings cut Portugal's debt ratings and kept a negative outlook on Ireland and Portugal, meaning their ratings may be cut further, and (3) weakness in the yen which tumbled to a 6-month low against the dollar on speculation Japan's economy will be hampered by the aftermath of its earthquake crisis.

Tuesday, April 5, 2011...

•   The dollar index this morning is higher with the dollar/yen +0.29 yen and the euro/dollar -0.43 cents. The dollar index yesterday finished slightly higher as the euro retreated from a 5-month high against the dollar on weaker than expected Euro-Zone investor confidence: Dollar Index +0.079, USDJPY -0.001, EURUSD -0.00141.

                Bullish factors included (1) weakness in the euro which fell back from a 5-month high against the dollar on concern a likely interest-rate increase by the ECB on Thursday will hurt the economies of the most indebted nations in the Euro-Zone, which could further exacerbate the European sovereign-debt crisis, and (2) the Apr Euro-Zone Sentix investor confidence fell which fell more than expected to a 3-month low and is euro negative.

                Bearish factors included (1) comments from Atlanta Fed President Lockhart who said the US economic recovery faces headwinds, which bolstered speculation the Fed will keep its overly easy monetary policy in place and keep t he dollar's interest rate differentials weak, and (2) the increase in the Feb Euro-Zone PPI to a 2-1/2 year high of +6.6% y/y, which boosted the euro on speculation the ECB will remain hawkish even after an expected 25 bp rate hike in the 2-week refinancing rate this Thursday.

Wednesday, April 6, 2011...

•   The dollar index this morning is weaker and posted a 1-1/2 week low with the dollar/yen +0.21 yen at a 6-1/4 month high and the euro/dollar +0.81 cents at a 14-1/2 month high. The dollar index yesterday erased an early rally and finished slightly lower after the Mar ISM non-manufacturing index fell more than expected: Dollar Index -0.030, USDJPY +0.806, EURUSD +0.00021. The yen fell to a 6-1/4 month low against the dollar.

                Bearish factors included (1) the larger-than-expected decline in the Mar ISM non-manufacturing index which fell to a 3-month low, and (2) expectations for an ECB rate hike on Thursday that will further improve the euro's interest rate differentials against the dollar.

                Bullish factors included (1) euro negative comments from ECB Council member Bonello who said that risks to the ECB's economic growth projections "are on the downside," (2) the action by Moody's Investors Service cut Portugal's long-term government bond rating to Baa1 from A3 , its second downgrade in the last 3 weeks, saying another downgrade may follow and the winner of Portugal's elections in June will probably tap Europe's bailout fund with "urgency," and (3) comments from Fed Chairman Bernanke who said that inflation must be watched "extremely closely," which fueled speculation that the Fed may tighten monetary policy sooner than previously expected.

Thursday, April 7, 2011...

•   The dollar index this morning is higher with the dollar/yen -0.43 yen and the euro/dollar -0.50 cents. The dollar index yesterday slumped to a 1-1/2 week low as the euro strengthened to a 14-1/2 month high against the dollar on speculation the ECB will raise interest rates even further after they raise them on Thursday: Dollar Index -0.368, USDJPY +0.626, EURUSD +0.01088. The yen tumbled to a 6-1/4 month low against the dollar.

                Bearish factors included (1) speculation the euro's interest rate differentials will widen further in favor of the euro as the ECB begins to hike interest rates while the Fed maintains its overly easy monetary policy, (2) the larger-than-expected increase in the Feb German factory orders, which is euro supportive, (3) supportive interest rate differentials for the euro after the 3-month Euribor rate increased for the fourteenth consecutive day, +0.7 bp to a 1-3/4 year high of 1.269%, and (4) comments from Atlanta Fed President Lockhart who said he is not "leaning" to Fed policy tightening this year.

                Bullish factors included (1) the fall in the yen to 6-1/4 low against the dollar on the outlook for further emergency stimulus from the BOJ, and (2) the attempt from Jean-Claude Juncker, head of the Euro-Zone finance ministers, to jawbone the euro down from a 14-1/2 month high against the dollar when he said the euro's exchange rate may be "slightly overstated."

Friday, April 8, 2011...

•   The dollar index this morning is weaker and slumped to a 16-month low with the dollar/yen +0.39 yen and the euro/dollar +1.06 cents t a 14-3/4 month high. The dollar index yesterday moved higher on comments from ECB President Trichet along with a larger-than-expected drop in weekly initial unemployment claims: Dollar Index +0.011, USDJPY -0.578, EURUSD -0.00237.

                Bullish factors included (1) comments from ECB President Trichet who said after raising interest rates Thursday by 25 bp that the increase wasn't the "first of a series" of rate hikes, which dampened speculation that the ECB will be overly aggressive in tightening monetary policy, (2) the larger-than-expected decline in weekly jobless claims, which signals economic strength and is dollar supportive, and (3) the ongoing European sovereign-debt crisis after Portugal became the third Euro-Zone country to ask for a bailout.

                Bearish factors included (1) improved interest rate differentials for the euro af ter the ECB hiked interest rates 25 bp, and (2) the stronger-than-expected Feb German industrial production which is euro supportive.

Monday, April 11, 2011...

•   The dollar index this morning is higher with the dollar/yen -0.07 yen and the euro/dollar -0.27 cents. The dollar index last Friday plunged to a 16-month low on the dollar's negative interest rate differentials along with strong exports from Germany: Dollar Index -0.513, USDJPY -0.167, EURUSD -0.01759.

                Bullish factors included (1) strength in the euro which rallied to a 14-3/4 month high against the dollar after Feb German exports rose more than expected to their best level in 5 months, (2) supportive interest rate differentials for the euro with the 3-month Euribor rate rising to a 1-3/4 year high of 1.294%, (3) strength in the British pound which rallied to a 14-1/2 month high against the dollar after Mar UK PPI output prices rose +5.4% y/y, their fastest pace of increase in 29 months, and (4) dollar negative comments from Atlanta Fed President Lockhart who said the Fed should be "patient" in withdrawing stimulus due to the fragile quality to the economy.

                Bearish factors were comments from ECB President Trichet who attempted to jawbone the dollar higher when he said that it's important that the US dollar is a "strong currency.

Tuesday, April 12, 2011...

•   The dollar index this morning is lower with the dollar/yen -0.35 yen and the euro/dollar +0.16 cents. The dollar index yesterday strengthened on renewed European sovereign-debt risks and after US lawmakers averted a government shutdown: Dollar Index +0.201, USDJPY -0.149, EURUSD -0.00479.

                Bullish factors included (1) the action by US lawmakers to avert a government shutdown by agreeing to budget cuts, and (2) euro weakness on renewed European sovereign-debt concerns after German Finance Minister Schaeuble said it is "unclear" whether Greece will need another cut in its bailout rate or a further extension of repayment terms to return to fiscal health.

                Bearish factors included (1) dovish comments from New York Fed President Dudley who said the Fed shouldn't rush to tighten monetary policy "too early," which suggests he favors keeping the Fed's overly easy monetary policy in place, and (2) the action by the IMF to cut its GDP estimate for the US this year to 2.8% from a Jan estimate of 3.0%, which is dollar negative.

Wednesday, April 13, 2011...

•   The dollar index this morning is weaker with the dollar/yen +0.50 yen and the euro/dollar +0.31 cents. The dollar index yesterday slumped to a 16-1/4 month low and closed lower after the Feb US trade deficit widened more than forecast along with hawkish comments from ECB Council member Stark which lifted the euro: Dollar Index -0.203, USDJPY -1.016, EURUSD +0.00415.

                Bearish factors included (1) strength in the euro which rallied to a 14-3/4 month high against the dollar after comments from ECB Council member Stark who said the ECB will adjust interest rates at an "appropriate" pace, which indicates the ECB has embarked on a gradual tightening cycle, despite last week's comments from ECB President Trichet that last week's rate hike wasn't necessarily the start of a series of rate hikes, (2) the larger-than-expected US trade deficit for Apr (-$45.8 billion versus expectations of -$44.0 billion), and (3) strong safe-haven demand for the yen which rallied to a 1- week high against the dollar after Japan's Nuclear and Industrial Safety Agency raised the level of the Fukushima crisis to 7, the highest in the standard global scale.

                Bullish factors included (1) the weaker than expected Apr German ZEW economic sentiment which fell to a 4-month low and is euro negative, and (2) weakness in the British pound which slid to a 1-week low against the dollar after Mar UK core CPI rose less than expected, which undercut expectations for a BOE interest rate hike.

Thursday, April 14, 2011...

•   The dollar index this morning is higher with the dollar/yen -0.72 yen and the euro/dollar -0.68 cents. The dollar index yesterday rebounded from early losses and finished higher on President Obama's plan to cut the US budget deficit by nearly $4 trillion in 12 years: Dollar Index +0.127, USDJPY -0.255, EURUSD -0.00341.

                Bullish factors included (1) President Obama's plan to cut the US deficit by $4 trillion in cumulative deficits within 12 years, which is dollar bullish, (2) the increase in Mar US retail sales for the 9th consecutive month, which signals economic strength and is dollar supportive, and (3) increased safe-haven demand for the dollar after the warning from the IMF that Euro-Zone nations face bank and sovereign funding "challenges" and that European banks will probably need government help to increase the quality and quantity of their capital to regain access to funding markets.

                Bearish factors included (1) strength in the euro after Mar German w holesale prices rose at their fastest pace in 29 years while Mar French CPI increased at its strongest pace in 29 months, which stokes speculation the ECB will continue to tighten monetary policy and is euro supportive, and (2) hawkish comments from ECB Council member Coene who said the ECB gave a clear signal that last week's rate increase wasn't a one-off by saying monetary policy remains supportive for economic growth and employment.

Friday, April 15, 2011...

•   The dollar index this morning is higher with the dollar/yen -0.27 yen and the euro/dollar -0.34 cents. The dollar index yesterday fluctuated on either side of unchanged and finished lower as US jobless claims rose and producer prices advanced at a slower pace, which may encourage the Fed to keep interest rates at record lows: Dollar Index -0.267, USDJPY -0.337, EURUSD +0.00447. The dollar index dropped to a 1-1/3 year low and the Japanese yen climbed to a 2-week high against the dollar.

                Bearish factors included (1) the unexpected increase in weekly US jobless claims along with a smaller-than-expected increase in Mar PPI, which may prompt the Fed to keeping interest rates at record lows, and (2) comments from ECB Council member Kranjec who said the ECB's policy stance is still "very accommodative," even after last week's interest rate increase, which is euro supportive as it bolsters the outlook for additional ECB rate hikes.

               Bullish factors included (1) ear ly weakness in the euro on concern Europe's debt crisis may worsen after yields on Greek and Portuguese government debt rose to records when German Finance Minister Schaeuble told Germany's Die Welt newspaper Greece may need to restructure its debt, and (2) short-covering in the dollar ahead of Friday's G-20 meeting in Washington.

Monday, April 18, 2011...

•   The dollar index this morning is stronger and at a 1-week high with the dollar/yen -0.31 yen and the euro/dollar -1.23 cents. The dollar index last Friday strengthened and finished higher after Moody's downgraded Ireland's credit rating and as US consumer confidence and industrial production increased: Dollar Index +0.119, USDJPY -0.379, EURUSD -0.00592.

                Bullish factors included (1) weakness in the euro after Moody's Investors Service cut Ireland's credit rating two levels to Baa3, the lowest investment grade, from Baa1 with a negative outlook, and after credit-default swaps to insure Greece's government debt climbed to a record 1,147 bp, and (2) the stronger-than-expected Apr US University of Michigan consumer confidence and Mar industrial production, which signals economic strength and is dollar supportive.

                Bearish factors included (1) the weaker than expected Feb net long-term TIC flows, which indicates weakened foreign demand for US dollar assets, and (2) the lar ger-than-expected increases in Mar Euro-Zone and Mar China consumer prices, which may lead to additional interest rate hikes from the ECB and PBOC that will further weaken the dollar's interest rate differentials.

Tuesday, April 19, 2011...

•   The dollar index this morning is lower with the dollar/yen -0.20 yen and the euro/dollar +0.39 cents. The dollar index yesterday rallied to a 1-week high and closed higher after St. Louis Fed President Bullard said the economic outlook for 2011 remains positive and as the euro tumbled on European debt concerns: Dollar Index +0.672, USDJPY -0.461, EURUSD -0.01950.

                Bullish factors included (1) the slide in the euro to a 1-1/2 week low against the dollar after credit-default swaps to insure Greek bonds jumped 56 bp to a record 1,211 bp and swaps to insure Portuguese government debt climbed 16 bp to a record 614 bp, (2) dollar supportive comments from St. Louis Fed President Bullard who said "the outlook for the remainder of 2011 remains reasonably strong, and (3) euro negative comments from ECB Council member Bonello who said the ECB mustn't raise interest rates at the expense of growth in debt-strapped Euro-Zone nations because the sovereign debt crisis is not yet b ehind us.

                Bearish factors included (1) strength in the yen which rallied to a 2-week high against the dollar after Standard & Poor's put a negative outlook on the AAA credit rating of the US, and (2) euro supportive comments from ECB Council member Nowotny who said that expectations the ECB's 2-week refinancing rate will be increased by another 50 bp in 2011 are "well-founded" and from fellow ECB Council member Coene who said that monetary "conditions are too accommodative."

Wednesday, April 20, 2011...

•   The dollar index this morning is weaker and at a 16-1/2 month low with the dollar/yen +0.18 yen and the euro/dollar +1.95 cents. The dollar index yesterday closed lower as the euro strengthened on an unexpected increase in Apr European manufacturing along with strength in the Canadian dollar after Canadian consumer prices accelerated to a 2-1/2 year high: Dollar Index -0.475, USDJPY -0.071, EURUSD +0.01005.

                Bearish factors included (1) strength in the euro after the unexpected increase in the Apr Euro-Zone PMI composite index, and (2) the rally in the Canadian dollar to a 1-week high against the US dollar after Mar Canada CPI rose more than expected to a 2-1/2 year high of +3.3% y/y, which may prompt the BOC into additional rate hikes.

                Bullish factors included (1) the larger-than-expected increases in May US housing starts and building permits, which signals economic strength and is supportive for the dollar, and (2) the prediction from Mizuho Corporate Bank that the Japanese yen may slide to 90 per dollar over the next year as Japan struggles to revive its earthquake-hit economy and restrain a widening budget deficit.

Thursday, April 21, 2011...

•   The dollar index this morning is weaker and at a 2-2/3 year low with the dollar/yen -0.53 yen and the euro/dollar +0.82 cents. The dollar index yesterday plummeted to a 16-1/2 month low as commodity currencies rallied and as surging equity markets reduced the dollar's safe-haven demand: Dollar Index -0.661, USDJPY -0.030, EURUSD +0.01886.

                Bearish factors included (1) a rally in commodity currencies as the Australian dollar rose to a record $1.0599 against the US dollar, the strongest since it was freely floated in 1983, and the Canadian dollar climbed to a 3-1/4 year high against the dollar after commodities rallied on expectations for further global economic growth, (2) strength in the euro which climbed to a 15-month high against the dollar as European debt concerns eased when demand for a Spanish auction of government debt strengthened, and (3) reduced safe-haven demand for the dollar after the equity market rallied sharply.

                Bullish factors included (1) the larger- than-expected increase in Mar US existing home sales, which signals economic strength and is supportive for the dollar, and (2) a possible increase in the safe-haven demand for the dollar after ECB Council member Nowotny warned that a restructuring of Greek government debt could lead to a debt spiral as "the fear could spread on financial markets that this may become a precedent."

Monday, April 25, 2011...

•   The dollar index this morning is lower with the dollar/yen +0.06 yen and the euro/dollar +0.58 cents. The dollar index last Thursday dropped to a 2-2/3 year low as weaker-than-expected US economic data fueled speculation the Fed will keep its overly easy monetary policy intact and further weaken the dollar's interest rate differentials: Dollar Index -0.373, USDJPY -0.708, EURUSD +0.00291. The yen climbed to a 3-week high against the dollar and the euro soared to a 16-month high.

                Bearish factors included (1) the smaller-than-expected decline in weekly US jobless claims along with the larger-than-expected decline in the Apr Philadelphia Fed manufacturing index to a 5-month low, which hints at economic weakness and is dollar negative, (2) the rally in the British pound to a 16-month high against the dollar after Mar UK retail sales unexpectedly rose, and (3) supportive interest rate differentials for the euro after the 3-month Euribor rate rose to a 1-3/4 year high of 1. 356%.

                Bullish factors included (1) the surge in yields on Greek, Portuguese and Irish government debt to euro-era records, which may boost the safe-haven demand for the dollar as it suggests a worsening of the European sovereign-debt crisis, and (2) the larger-than-expected decline in the Apr German IFO business climate, which is euro negative.

Tuesday, April 26, 2011...

•   The dollar index this morning is weaker with the dollar/yen -0.17 yen and the euro/dollar +0.25 cents. The dollar index yesterday weakened on speculation that the FOMC this week will keep interest rates at a record low, which will keep the dollar's interest rate differentials weak: Dollar Index -0.122, USDJPY -0.017, EURUSD +0.00288.

                Bearish factors included (1) an early rally in commodity currencies against the dollar after crude oil rose to a 2-1/2 year high, and (2) speculation that the FOMC this week will keep interest rates at a record low, which may prompt inventors to shy away from dollar assets in favor of higher yielding ones.

                Bullish factors included (1) increased safe-haven demand for the dollar as the stock market declined, and (2) weakness in the yen against the dollar on speculation the BOJ this week will signal an increase in stimulus to help Japan's economy recover from its earthquake crisis.

Wednesday, April 27, 2011...

•   The dollar index this morning is weaker and posted a fresh 2-1/2 year low in overnight trade with the dollar/yen +0.69 yen and the euro/dollar +0.29 cents. The dollar index yesterday closed lower on speculation that the FOMC on Wednesday will keep interest rates at a record low along with strength in the euro which rallied to a 16-1/4 month high against the dollar on hawkish comments from ECB President Trichet: Dollar Index -0.149, USDJPY -0.277, EURUSD +0.0630.

                Bearish factors included (1) speculation that the FOMC on Wednesday will keep interest rates at a record low, which may prompt inventors to shy away from the dollar in favor of higher yielding assets, (2) comments from ECB President Trichet who said the ECB must continue "solidly anchoring" inflation expectations, which bolstered speculation for further ECB rate hikes, and (3) reduced safe-haven demand for the dollar after stock prices rallied to 2-3/4 year highs.

                Bullish factors included (1) a possi ble increase in the safe-haven demand for the dollar after credit-default swaps to insure Greek and Portuguese government debt jumped to records, which raises concern the European sovereign-debt crisis will worsen, (2) the stronger-than-expected Apr US consumer confidence, which is dollar supportive, and (3) comments from Treasury Secretary Geithner who reaffirmed the US commitment to a "strong dollar".

Thursday, April 28, 2011...

•   The dollar index this morning is weaker and fell to a fresh 2-3/4 year low in overnight trade with the dollar/yen -0.41 yen and the euro/dollar +0.18 cents. The dollar index yesterday fell to a 2-2/3 year low and closed lower after the Fed lowered its growth forecast for this year and said it will finish its QE2 bond purchase program: Dollar Index -0.318, USDJPY +0.598, EURUSD +0.01437.

                Bearish factors included (1) the action by the Fed to cut its growth forecast for the economy this year to 3.1% to 3.3% from a Jan forecast of 3.4% to 3.9% and to raise its core inflation estimate for this year to 1.3% to 1.6%, higher than a Jan estimate of 1.0% to 1.3%, (2) the action by the Fed to maintain its QE2 asset-purchase program, which further weakens the dollar's interest rate differentials, and (3) reduced safe-haven demand for the dollar after the S&P 500 climbed to a 2-3/4 year high.

                Bullish factors included (1) a possible increase in the safe-haven demand for the dol lar after credit-default swaps to insure the government debts of Greece, Portugal and Ireland all rose to records, which raises concern the European sovereign-debt crisis will worsen, and (2) weakness in the yen after Standard & Poor's cut Japan's sovereign-rating outlook to "negative" from "stable," citing the costs for rebuilding after lest month's earthquake.

Friday, April 29, 2011...

•   The dollar index this morning is lower with the dollar/yen -0.19 yen and the euro/dollar +0.39 cents. The dollar index yesterday fell to a 2-3/4 year low and closed lower after weak US economic data undercut the dollar while the fall in Apr German unemployment to a 19-year low boosted the euro: Dollar Index -0.398, USDJPY -0.619, EURUSD +0.00345.

                Bearish factors included (1) weaker-than-expected US economic data that included slower-than-expected growth in Q1 US GDP and weekly initial jobless claims that rose to a 3-month high, and (2) strength in the euro which climbed to a 16-1/2 month high against the dollar after Apr German unemployment fell -37,000 to 2.97 million, a 19-year low along with supportive interest rate differentials for the euro as the 3-month Euribor rate rose to a 2-year high of 1.375%.

                Bullish factors included (1) the action by the BOJ to cut its growth estimate for the year ending Mar 2012 to 0.6% from a Jan prediction of 1.6%, which is yen negati ve, and (2) the unexpected decline in Mar French consumer spending, which is euro bearish.

Monday, May 2, 2011...

•   The dollar index this morning is weaker and fell to a fresh 2-3/4 year low in overnight trade with the dollar/yen +0.19 yen and the euro/dollar +0.36 cents. The dollar index last Friday tumbled to a 2-3/4 year low and settled lower as weaker-than-expected US manufacturing data undercut the dollar while an increase in Euro-Zone inflation boosted the euro to a 16-1/2 month high: Dollar Index -0.188, USDJPY -0.335, EURUSD -0.00142.

                Bearish factors included (1) the weaker-than-expected Apr Chicago purchasing mangers index, which indicates a slowdown in US manufacturing and is dollar negative, (2) early strength in the euro which rallied to a 16-1/2 month high against the dollar after the Apr Euro-Zone CPI estimate rose more than expected to a 2-1/2 year high, which bolsters speculation for additional ECB rate hikes, and (3) reduced safe-haven demand for the dollar after the S&P 500 climbed to a 2-3/4 year high.

                Bullish factors included (1) the unexpected decline in Ma r German retail sales, which is euro negative, and (2) the stronger-than-expected Mar US personal spending, which indicates strength in the US economy and is dollar supportive.

Tuesday, May 3, 2011...

•   The dollar index this morning is higher with the dollar/yen -0.38 yen and the euro/dollar -0.39 cents. The dollar index yesterday relinquished an early rally and closed little changed as the dollar's interest rate differentials remain weak on speculation the Fed will keep interest rates at record lows while other central banks raise their rates: Dollar Index -0.188, USDJPY -0.335, EURUSD -0.00142. The dollar index fell to a 2-3/4 year low but erased its losses and closed little changed.

                Bearish factors included (1) strength in the euro which rallied to a 16-3/4 month high against the dollar on speculation the ECB will continue to tighten monetary policy after French and German PMI manufacturing indexes were unexpectedly revised upward, (2) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the euro's current strength is "not worrying" and won't hinder growth in the region, and (3) reduced safe-haven demand for the dollar aft er the S&P 500 climbed to a 2-3/4 year high.

                Bullish factors included (1) early strength in the dollar after news that Osama bin Laden was killed, which fueled speculation that the terror risk will get smaller for the US, and (2) the stronger than expected Apr ISM manufacturing index, which indicates economic strength and is dollar supportive.

Wednesday, May 4, 2011...

•   The dollar index this morning is lower with the dollar/yen +0.22 yen and the euro/dollar +0.32 cents. The dollar index yesterday settled slightly higher after Mar US factory orders rose more than expected: Dollar Index +0.189, USDJPY -0.296, EURUSD -0.00044.

                Bullish factors included (1) the larger-than-expected increase in Mar US factory orders and the unexpected upward revision to Feb factory orders, which signals economic strength and is dollar supportive, and (2) comments from Kansas City Fed President Hoenig who said there is a "pretty high" likelihood that the US economy will keep expanding after growth in Q1 was weaker than expected and that the Fed should begin withdrawing its monetary stimulus as part of efforts to "calm" concerns about inflation in the US.

                Bearish factors included (1) strength in the euro after Mar Euro-Zone producer prices accelerated more than expected to their fastest pace in 2-1/2 years, which bolsters the outlook for further ECB interest rate hikes, and (2) the prediction from Credit Suisse Group AG that the dollar will weaken to $1.50 per euro in the next 12 months on interest rate differentials and low volatility.

Thursday, May 5, 2011...

•   The dollar index this morning is weaker with the dollar/yen -0.80 yen and the euro/dollar +0.04 cents. The dollar index yesterday sank to a 2-3/4 year low on weak US economic data along with strength in the euro which rallied to a 17-month high against the dollar on speculation ECB President Trichet will signal further rate increases when he speaks on Thursday: Dollar Index -0.109, USDJPY -0.311, EURUSD +0.00017.

                Bearish factors included (1) weaker-than-expected US economic data on Apr ISM non-manufacturing and Apr ADP employment, which may prompt the Fed to keep interest rates at record lows and further weaken the dollar's interest rate differentials, (2) speculation that ECB President Trichet will signal further interest rate increases when he speaks at Thursday's monthly press conference, and (3) dollar negative comments from Boston Fed President Rosengren who said he sees "no reason" to raise interest rates amid higher oil prices.

                Bullish factors include d (1) increased safe-haven demand for the dollar after the equity market tumbled, and (2) the weaker-than-expected Mar Euro-Zone retail sales, which is euro negative.

Friday, May 6, 2011...

•   The dollar index this morning is little changed with the dollar/yen +0.17 yen and the euro/dollar -0.18 cents. The dollar index yesterday rebounded to a 1-week high after the euro tumbled when ECB President Trichet signaled the ECB may wait until after June to raise interest rates again: Dollar Index +1.163, USDJPY -0.443, EURUSD -0.03038.

                Bullish factors included (1) comments from ECB President Trichet, which were less hawkish than the markets were expecting, when he refrained from using the phrase "strong vigilance" against inflation, which signals the ECB may wait until after its June meeting to raise interest rates further, (2) the unexpected drop in Mar German factory orders, which is euro negative, and (3) the drop in the British pound to a 2-week low against the dollar after Apr UK PMI services fell more than expected to a 4-month low.

                Bearish factors included (1) the unexpected increase in weekly US jobless claims to an 8-1/2 month high, which signals economic weakness and may prompt the Fed to maintain its overly easy monetary policy, and (2) strength in the yen which rallied to a 1-1/2 month high against the dollar after Japanese Finance Minister Noda said the recent rally in the yen is due to dollar weakness, which signals the BOJ may refrain from further currency intervention to weaken the yen.

Monday, May 9, 2011...

•   The dollar index this morning is weaker with the dollar/yen +0.12 yen and the euro/dollar +0.86 cents. The dollar index last Friday rallied to a 2-1/2 week high on strong Apr US nonfarm payrolls and on a report that Greece was considering leaving the Euro-Zone: Dollar Index +0.647, USDJPY +0.559, EURUSD -0.02249.

                Bullish factors included (1) the stronger-than-expected Apr US nonfarm payrolls which signals economic strength and is dollar supportive, and (2) weakness in the euro which fell to 2-week low against the dollar after Der Spiegel magazine reported that Greece is considering reintroducing its own currency and may stop using the euro.

                Bearish factors included (1) comments from New York Fed President Dudley who said the US recovery is still a "considerable way" from the Fed's goals, which suggest he favors keeping the Fed's overly easy monetary policy in place, and (2) the stronger-than-expected Mar German industrial production, which is euro supportive .

Tuesday, May 10, 2011...

•   The dollar index this morning is stronger with the dollar/yen +0.29 yen and the euro/dollar -0.27 cents. The dollar index yesterday fell back from a 2-1/2 week high and closed lower on speculation the ECB will continue to raise interest rates despite an escalation in European sovereign-debt concerns: Dollar Index -0.104, USDJPY -0.272, EURUSD +0.00503.

                Bearish factors included (1) strength in Mar German exports which rose more than expected to their highest level since records began in 1950 and is euro supportive, and (2) stock market strength that sapped the safe-haven demand for the dollar.

                Bullish factors included (1) early weakness in the euro after S&P cut Greece's credit rating 2 levels to B from BB- and said further reductions are possible, (2) weakness in the British pound which fell to a 2-1/2 week low against the dollar after the Confederation of British Industry lowered its economic growth estimates for the UK to 1.7% annualized from a Feb forecast of 1.8% annualized, and (3) the larger-than-expected decline in the May Euro-Zone Sentix investor confidence which fell to its lowest level in 4 months and is euro negative.

Wednesday, May 11, 2011...

•   The dollar index this morning is slightly higher with the dollar/yen +0.13 yen and the euro/dollar -0.45 cents. The dollar index yesterday fluctuated between small gains and losses throughout the day and finished slightly lower as strong equity prices reduced the safe-haven demand for the dollar while concerns over the solvency of Greece underpinned the dollar: Dollar Index -0.126, USDJPY +0.524, EURUSD +0.00441.

                Bearish factors included (1) reduced safe-haven demand for the dollar as stock prices firmed, and (2) the report from the Greek newspaper Kathimerini that the IMF is arranging a package of as much as 100 billion euros ($144 billion) to replace Greece's existing bailout, which reduced European sovereign-debt concerns.

                Bullish factors included (1) the unexpected declines in Mar French industrial and manufacturing production, which is euro negative, and (2) the view from the chief economist at Citigroup that any further lending to Greece would be futile and amou nt to "Ponzi finance" as it only buys more time until Greece must restructure its debt.

Thursday, May 12, 2011...

•   The dollar index this morning is stronger and at a 3-1/2 week high with the dollar/yen -0.13 yen and the euro/dollar -0.46 cents. The dollar index yesterday climbed to a 3-week high on increased safe-haven demand as the stock market fell on concern that European leaders are balking at providing Greece with additional aid: Dollar Index +0.716, USDJPY +0.169, EURUSD -0.02176.

                Bullish factors included (1) weakness in the euro which fell to a 3-week low against the dollar after German Chancellor Merkel said Greece needs to stay the course on its budget-cutting program to deserve an extension of the 110 billion-euro ($158 billion) bailout granted last year, which fuels concern that European leaders are hesitating in granting Greece additional aid, which may force Greece to restructure its debt, and (2) increased safe-haven demand for the dollar as the stock market fell.

                Bearish factors included (1) concern that the ECB may tighten monetary policy further after Apr German c onsumer prices were unexpectedly revised up to a gain of +2.7% y/y, a 2-1/2 year high, and (2) the larger-than-expected Mar US trade deficit which widened to its most in 9 months (-$48.2 billion) and is dollar negative.

Friday, May 13, 2011...

•   The dollar index this morning is weaker with the dollar/yen -0.26 yen and the euro/dollar +0.33 cents. The dollar index yesterday fell back from a 3-1/2 week high and closed lower after commodities and stocks rebounded from early losses, which reduced the safe-haven demand for the dollar: Dollar Index -0.087, USDJPY -0.109, EURUSD +0.00539.

                Bearish factors included (1) a rebound in commodities and stocks which shed early losses and reduced the safe-haven demand for the dollar, and (2) the recovery in the euro which bounced off of a 1-1/4 month low and finished higher on reduced Greek debt concerns after former ECB Vice President and current adviser to the Greek government, Lucas Papademos, said that Greece's exit from the EU was a "non-issue" and that the Greek asset privatization plan could ultimately exceed the announced 50 billion euros ($70.1 billion).

                Bullish factors included (1) comments from ECB Executive Board member Tumpel-Gugerell who said other co untries will be asked to help Greece as the country will need "longer" to be able to refinance itself via the markets, (2) early weakness in the euro which fell to a 1-1/4 month low against the dollar after Mar Euro-Zone industrial production unexpectedly declined.

Monday, May 16, 2011...

•   The dollar index this morning is stronger and at a 1-1/4 month high with the dollar/yen +0.10 yen and the euro/dollar -0.16 cents. The dollar index last Friday recovered from early losses and surged to a 1-1/4 month high and closed higher on increased safe-haven demand for the greenback as stock prices slid: Dollar Index +0.517, USDJPY -0.160, EURUSD -0.01290.

                Bullish factors included (1) increased safe-haven demand for the dollar after stock prices tanked, and (2) the larger-than-expected increase in May US University of Michigan consumer confidence.

                Bearish factors included (1) the stronger-than-expected Q1 Euro-Zone GDP, which is euro supportive, and (2) strength in the yen after Japanese Economy and Fiscal Policy Minister Yosano said the yen's strength was the result of the dollar weakening, not the yen gaining independently, which fueled speculation that the BOJ nor the G-7 will intervene in currency markets to slow the yen's gains.

Tuesday, May 17, 2011...

•   The dollar index this morning is lower with the dollar/yen +0.80 yen and the euro/dollar +0.40 cents. The dollar index yesterday retreated from a 1-1/4 month high and closed lower on concern the economy is slowing and after global demand for dollar assets weakened in March: Dollar Index -0.287, USDJPY +0.011, EURUSD +0.00392.

                Bearish factors included (1) the smaller-than-expected increase in the Mar net long-term TIC flows, which rose at the slowest pace in 14 months and signals weakened foreign demand for US dollar assets, (2) weaker-than-expected US economic data on May Empire manufacturing and the May NAHB housing market index, which is dollar negative as it suggest a possible slowdown in the US economy that may prompt the Fed into maintaining its overly easy monetary policy, and (3) the increase in Apr Euro-Zone CPI to +2.8% y/y, its fastest pace in 2-1/2 years, which boosts pressure on the ECB for further interest rate hikes.

                Bullish factors included (1) increase d safe-haven demand for the dollar on concern the European sovereign-debt crisis may worsen as European leaders and the IMF met in Brussels to discuss additional aid to Greece, and (2) a possible increase in safe-haven demand for the dollar after Moody's Investors Service warned that a Greek default would be "highly destabilizing" for banks and undermine global capital markets as it would cause losses that "far exceed" the size of banks' loans and investments there.

Wednesday, May 18, 2011...

•   The dollar index this morning is lower with the dollar/yen -0.27 yen and the euro/dollar +0.06 cents. The dollar index yesterday finished slightly lower on weak US economic data and after European sovereign debt concerns eased: Dollar Index -0.071, USDJPY +0.625, EURUSD +0.00809.

                Bearish factors included (1) weaker-than-expected US economic data on Apr US housing starts and industrial production, which indicates economic weakness and is dollar negative, (2) reduced European debt concerns after credit-default swaps to insure European government debt fell to a 5-week low, and (3) euro supportive comments from ECB Executive Board member Tumpel-Gugerell who said interest rates should be consistent with economic activity, which suggests she sees room for further monetary tightening.

                Bullish factors included (1) weakness in the yen which fell to a 2-1/2 week low against the dollar after BOJ Governor Shirakawa said the Japanese economy is in a "very severe" state, which fueled speculation that monetary policy may be eased further, and (2) the weaker-than-expected May German ZEW economic sentiment which fell to its lowest level in 6 months and is euro negative.

Thursday, May 19, 2011...

•   The dollar index this morning is weaker with the dollar/yen +0.20 yen and the euro/dollar +0.16 cents. The dollar index yesterday rebounded from early losses and finished higher after the Apr-26-27 FOMC meeting minutes revealed that Fed members began to coalesce on a strategy to begin removing record stimulus: Dollar Index +0.076, USDJPY +0.261, EURUSD +0.00125.

                Bullish factors included (1) the Apr-26-27 FOMC meeting minutes in which Fed members discussed exit strategies from record stimulus measures, (2) weakness in the British pound which fell to a 1-1/4 month low against the dollar after minutes from the BOE monetary policy meeting earlier this month showed policy makers voted 6-3 to keep interest rates on hold, (3) dollar supportive comments from St. Louis Fed President Bullard who said "I still think is reasonable" to expect Fed tightening by the end of the year, and (4) the -0.3% decline in Mar Euro-Zone construction output which fell for a second month and is euro negative.

                Bearish factors included (1) the rally in the stock market, which reduced the safe-haven demand for the dollar, and (2) euro supportive comments from EU Economic and Monetary Affairs Commissioner Rehn who said the base of the European economic expansion is "broadening from exports to domestic demand and thus the recovery is becoming more solid and self-sustaining."

Friday, May 20, 2011...

•   The dollar index this morning is higher with the dollar/yen +0.05 yen and the euro/dollar -0.73 cents. The dollar index yesterday settled lower as a drop in the yen to a 3-week low against the dollar was offset by weaker-than-expected US economic data: Dollar Index -0.352, USDJPY -0.067, EURUSD +0.00616.

                Bearish factors included (1) the unexpected declines in Apr leading indicators, existing US home sales and May Philadelphia Fed manufacturing, which indicates economic weakness that is dollar negative, (2) comments from New York Fed President Dudley who said "We still have a considerable way to go to meet the Fed's dual mandate of full employment and price stability," which suggests he is in no hurry to end the Fed's record stimulus measures, and (3) the action by Goldman Sachs to cut its 3-month dollar forecast to $1.45 per euro from $1.40, saying "With unemployment still high, fiscal consolidation looming and continued weakness in the real estate sector, the gro wth outlook remains less compelling in the US than in may other regions or countries."

                Bullish factors included (1) the slide in the yen to a 3-week low against the dollar on speculation the BOJ will keep stimulus efforts in place after Q1 Japan GDP was revised downward, and (2) the larger-than-expected drop in weekly US initial unemployment claims.

Monday, May 23, 2011...

•   The dollar index this morning is higher and at a 1-1/2 month high with the dollar/yen +0.09 yen and the euro/dollar -1.41 cents at a 2-month low. The dollar index last Friday closed higher as European sovereign-debt concerns fueled an increase in the safe-haven demand for the dollar: Dollar Index +0.312, USDJPY +0.090, EURUSD -0.01512.

                Bullish factors included (1) increased safe-haven demand for the dollar after Fitch Ratings cut Greece's credit rating one notch to B+ from BB+ and said the country could face a further reduction in its creditworthiness, (2) comments from ECB Council member Weidmann who said the ECB may not be able to accept Greek sovereign debt as collateral if the bond maturities are extended, and (3) the Bundesbank's monthly bulletin that stated economic growth in Germany "is likely to ease somewhat in the foreseeable future."

                Bearish factors included (1) dollar negative comments from Chicago Fed President Evans who said that "slow pro gress" in the economy justifies "substantial policy accommodation," and (2) strength in the yuan after PBOC Governor Xiaochuan said that inflation remains "high" and China needs to strike a balance between economic growth and consumer prices, which fueled speculation of further tightening measures by China.

Tuesday, May 24, 2011...

•   The dollar index this morning is weaker with the dollar/yen -0.19 yen and the euro/dollar +0.33 cents. The dollar index yesterday rallied to a 1-1/2 month high and closed higher on increased safe-haven demand due to concern Europe's sovereign-debt crisis will worsen: Dollar Index +0.721, USDJPY +0.309, EURUSD -0.01117.

                Bullish factors included (1) increased safe-haven demand for the dollar after the yields on Greek and Irish 10-year government bonds rose to records and Standard & Poor's warned it may downgrade Italy's debt, an indication the European debt crisis may worsen, (2) weakness in the euro which tumbled to a 2-month low against the dollar after May German manufacturing PMI fell to its lowest level in 6 months and the May Euro-Zone PMI composite fell more than expected, and (3) increased safe-haven demand for the dollar after the May China HSBC manufacturing PMI fell to its slowest pace of expansion in 10-months, a sign the global economy is slowing.

                Bearish factors included (1) the fall in the 10-year T-note yield to a 5-1/2 month low, which weakens the dollar's interest rate differentials, and (2) the slide in the Apr Chicago Fed National Activity Index to its lowest level in 8 months, which suggests economic weakness and is dollar negative.

Wednesday, May 25, 2011...

•   The dollar index this morning is higher with the dollar/yen +0.08 yen and the euro/dollar -0.38 cents. The dollar index yesterday closed lower as the euro strengthened on stronger than expected German business confidence and reduced European sovereign-debt concerns: Dollar Index -0.269, USDJPY -0.052, EURUSD +0.00518.

                Bearish factors included (1) the stronger-than-expected May German IFO business climate index, (2) the action by the Greek government to endorse an asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts to win extra aid, which reduced European debt concerns, and (3) comments from St. Louis Fed President Bullard who said the Fed may keep its policy rate, the size of its balance sheet and policy language on hold to "give the FOMC more time to assess economic conditions."

                Bullish factors included (1) the unexpected increase in Apr US new home sales, which suggest economic strength and is dollar supportive, and (2) the larger-than-expect ed declines in May French business confidence and in Mar Euro-Zone industrial new orders, which is euro negative.

Thursday, May 26, 2011...

•   The dollar index this morning is lower with the dollar/yen -0.14 yen and the euro/dollar +0.76 cents. The dollar index yesterday finished slightly higher after it shook off early weakness when Apr durable goods orders fell more than expected and rallied on euro negative comments from ECB Council members Draghi and Stark: Dollar Index +0.050, USDJPY +0.011, EURUSD -0.00120.

                Bullish factors included (1) the bigger-than-expected decline in the Jun German GfK consumer confidence survey which fell to its lowest level in 6 months and is euro negative, (2) the action by the OECD to raise its US growth estimates for this year, (3) comments from ECB Executive Board member Stark who said Greece, Ireland and Portugal need a "drastic change" in economic policy, which boosted the safe-haven demand for the dollar on concern the European sovereign-debt crisis will linger, and (4) comments from ECB Council member Draghi who said he sees "serious downside risks" to economic growth from the European debt crisis.

                Bearish factors included (1) the larger-than-expected drop in Apr US durable goods orders which posted their biggest decline in 6 months and hints at economic weakness, and (2) hawkish comments from ECB Executive Board member Stark who said interest rates could go higher "if needed" because Europe's economy is growing more strongly than expected.

Friday, May 27, 2011...

•   The dollar index this morning is weaker with the dollar/yen -0.17 yen and the euro/dollar +0.94 cents. The dollar index yesterday settled with modest losses as weaker-than-expected US economic data fueled speculation that the US will lag behind other countries in raising interest rates: Dollar Index -0.383, USDJPY -0.678, EURUSD -0.00562.

                Bearish factors included (1) the weaker-than-expected Q1 US GDP along with the unexpected increase in weekly US initial unemployment claims, which bolsters the outlook for the Fed to maintain its overly easy monetary policy, (2) comments from ECB President Trichet who said policy makers are "carefully" monitoring inflation, which bolsters speculation the ECB is prepping the markets for another interest rate hike, and (3) comments from the CEO of the European Financial Stability Facility that Asian investors, including the Chinese government, may compromise a "strong proportion" of Portuguese bailout bond buyers when the EFSF sells the bailout bonds next month, which eases concern that the European debt crisis will spread.

                Bullish factors included (1) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the IMF needs "financing assurances" before it releases its share of aid to Greece next month, which undercut the euro as it raises uncertainty over additional aid for Greece, and (2) the prediction from Fidelity Investments that the dollar is set to strengthen over the next 18 months to 3 years because of competitive advantages in the US.

Tuesday, May 31, 2011...

•   The dollar index this morning is lower and at a 2-1/2 week low with the dollar/yen +0.64 yen and the euro/dollar +1.19 cents. The dollar index last Friday plunged to a 2-week low as weaker-than-expected data on US consumer spending and home sales suggests the Fed will lag behind other central banks in raising interest rates: Dollar Index -0.595, USDJPY -0.490, EURUSD +0.01583.

                Bearish factors included (1) the weaker-than-expected economic data on Apr US personal spending and Apr pending home sales, which may prompt he Fed into maintaining its overly easy monetary policy, and (2) euro strength after ECB Council member Wellink said he's "fully confident" Greece will meet conditions to receive its 3.3 billion-euro ($4.7 billion) aid payment by the IMF next month.

                Bullish factors included (1) the larger-than-expected decline in the May Euro-Zone economic confidence which fell to a 7-month low and is euro negative, and (2) the unexpected increase in the May US Un iversity of Michigan consumer confidence, which is dollar supportive.

Wednesday, June 1, 2011...

•   The dollar index this morning is little changed with the dollar/yen -0.17 yen and the euro/dollar +0.06 cents. The dollar index yesterday slid to a 2-1/2 week low and settled lower as optimism European officials will approve additional aid for Greece boosted the euro while weaker-than-expected US economic data undercut the dollar: Dollar Index -0.335, USDJPY +1.157, EURUSD +0.00941.

                Bearish factors included (1) the rally in the euro to a 3-week high against the dollar on reduced European debt concerns after Jean-Claude Juncker, leader of the Euro-Zone finance ministers, said that EU leaders will decide on a new aid package for Greece by the end of June and that EU officials have ruled out a "total restructuring" of Greece's debt, and (2) weaker-than-expected US economic data on May consumer confidence, May Chicago purchasing managers, and Mar S&P CaseShiller home prices, which suggests economic weakness and is dollar negative.

                Bullish factors included (1 ) weaker-than-expected European economic data on Apr German retail sales and Apr French consumer spending, which is euro negative, and (2) weakness in the yen against the dollar after Moody's Investors Service put Japan's debt rating on review for a downgrade, citing faltering growth prospects and "a weak policy response" that may hinder government efforts to cut the nation's debt burden.

Thursday, June 2, 2011...

•   The dollar index this morning is weaker and slipped to a 3-1/2 week low in overnight trade with the dollar/yen -0.13 yen and the euro/dollar +1.40 cents. The dollar index yesterday fell to a 3-1/2 week low on weaker-than-expected US economic data but erased its losses and closed higher on increased safe-haven demand after Moody's cut Greece's bond ratings and the stock market tumbled: Dollar Index +0.039, USDJPY -0.578, EURUSD -0.00681.

                Bullish factors included (1) the unexpected downward revision to May Euro-Zone PMI manufacturing, which is euro negative, (2) weakness in the British pound which declined against the dollar after May UK PMI manufacturing fell to its lowest level in 1-1/2 years, (3) increased safe-haven demand for the dollar as the equity market sold off and after Moody's Investors Service cut Greece's local and foreign currency bond ratings to Caa1 from B1 with a negative outlook.

                Bearish factors included (1) the weaker than expected May ADP employment change which showed its smallest job gain in 8 months, (2) the weaker-than-expected May ISM manufacturing index which expanded at its slowest pace in 20-months, and (3) the fall in the 10-year T-note yield to a 5-3/4 month low, which further weakens the dollar's interest rate differentials.

Friday, June 3, 2011...

•   The dollar index this morning is little changed with the dollar/yen -0.33 yen and the euro/dollar +0.02 cents. The dollar index yesterday slid to a 3-1/2 week low and finished modestly lower after comments from German Chancellor Merkel lifted the euro while weaker-than-expected US economic data undercut the dollar: Dollar Index -0.344, USDJPY -0.052, EURUSD +0.01621.

                Bearish factors included (1) comments from German Chancellor Merkel who said the European Union remains committed to the euro and the outlook for German growth is "very positive," (2) weaker-than-expected US economic data on weekly jobless claims and Apr factory orders, which indicate economic weakness and is dollar negative, and (3) the warning from Moody's that it will place the US government's rating under review for possible downgrade if there is no progress on increasing the statutory debt limit in coming weeks.

                Bullish factors included (1) increased safe-haven demand for the dollar after c redit-default swaps to insure Portuguese and Irish government debt rose to records, which indicate the European sovereign-debt crisis may worsen, and (2) the early slide in stock prices which also boosted the safe-haven demand for the dollar.

Monday, June 6, 2011...

•   The dollar index this morning is slightly higher as its rebounds from a 1-month low with the dollar/yen -0.25 yen and the euro/dollar -0.26 cents. The dollar index last Friday slumped to a 1-month low after May US nonfarm payrolls grew at the slowest pace in 8 months along with strength in the euro after Greece was approved for a revised bailout plan: Dollar Index -0.550, USDJPY -0.616, EURUSD +0.01439.

                Bearish factors included (1) the weaker-than-expected May US nonfarm payrolls report which may prompt the Fed into maintaining its overly easy monetary policy and further weaken the dollar's interest rate differentials, (2) the statement from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the EU will approve additional financing to Greece, which lifted the euro to a 1-month high against the dollar and reduces European debt concerns, and (3) the unexpected upward revisions to May German PMI services and to the May Euro-Zone PMI composite, which is euro supportive.

                Bullish factors included (1) increased safe-haven demand for the dollar after the stock market tumbled, and (2) the stronger-than-expected May ISM non-manufacturing index, which is dollar supportive.

Tuesday, June 7, 2011...

•   The dollar index this morning is weaker and at a 1-month low with the dollar/yen +0.10 yen and the euro/dollar +0.88 cents at a 1-month high. The dollar index yesterday sank to a 1-month low on speculation the Fed will lag behind other central banks in raising interest rates but recovered its losses and closed higher after the euro weakened on increased European sovereign-debt concerns: Dollar Index +0.169, USDJPY -0.174, EURUSD -0.00586.

                Bullish factors included (1) the larger-than-expected decrease in Jun Euro-Zone Sentix investor confidence which fell to an 11-month low and is euro negative, and (2) increased safe-haven demand for the dollar on concern a Greek default would devastate European banks after data from the BIS showed that at the end of 2010, Greek government bonds held by banks in countries reporting to the BIS totaled $54.2 billion, of which 96% was owned by European lenders.

                Bearish factors included (1) speculation the Fed will lag behind other global central banks in raising interest rates, which will further weaken the dollar's interest rate differentials, and (2) strength in the yen which rose to a 1-month high against the dollar on increased safe-haven demand as global equity markets fell on concern over the sustainability of the economic recovery.

Wednesday, June 8, 2011...

•   The dollar index this morning is higher with the dollar/yen -0.24 yen and the euro/dollar -0.63 cents. The dollar index yesterday fell to a 1-month low and closed lower after the euro rallied to 1-month high against the dollar on stronger-than-expected Euro-Zone economic data along with ECB President Trichet's approval of Greek bond rollovers: Dollar Index -0.424, USDJPY -0.009, EURUSD +0.01152.

                Bearish factors included (1) reduced European debt concerns which undercut the safe-haven demand for the dollar after ECB President Trichet said a rollover of Greek debt as an alternative means of easing Greece's funding squeeze "is not a default, and is something the ECB would consider appropriate," and (2) stronger-than-expected European economic data on Apr Euro-Zone retail sales and Apr German factory orders, which signals economic strength and is euro supportive.

                Bullish factors included (1) weakness in the yen after Japanese Finance Minister Noda said "I w ill closely monitor developments in the markets," which indicates he may favor additional currency intervention if the yen strengthens further, and (2) dollar supportive comments from Dallas Fed President Fisher who said that despite signs the economy may be slowing, the so-called "doves" of the FOMC will not be pushing for another round of monetary stimulus for the US economy.

Dollar Index

The Dollar Index is headed for a test of the rising trendline after a false break above 84.00. Respect of the trendline would indicate the primary up-trend is intact, while reversal below 80.50 would warn of a primary down-trend. Bearish divergence on 13-week Twiggs Momentum indicates trend weakness. Recovery above 84.50, however, would signal an advance to 90.00*.