3SOF

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.