The U.S. Dollar

[setravis]

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.

[setravis]

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.

[setravis]

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."

[setravis]

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.

[setravis]

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.

[setravis]

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.

[setravis]

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.

[setravis]

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.

[setravis]

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.

[setravis]

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.

[setravis]

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.

[setravis]

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.

[setravis]

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.

[setravis]

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.

[setravis]

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.