3SOF

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.