Has the Weak Dollar Sentiment Turned?

The Euro is weaker vs. the dollar despite a positive German IFO number. For the third month in a row Germany's economic research IFO indicated that business was improving and the economy may have bottomed. Similar to sentiment in the U.S., the German business outlook indicated future strength. Since the ECB’s mandate is to keep prices stable ahead of economic growth, market participants expected the ECB to be the first to raise rates. However, ECB member Nowotny threw cold water on that perception.

Nowotny’s assertion that rates would remain unchanged until 2010 resulted in the Euro weakening vs. the dollar. The market is adjusting to the new reality that the dollar may be a better relative investment. This statement by Nowotny makes the FOMC statement even more important. Investors will obsess over the wording to determine if the Fed will be the first to tighten.

This is precisely the change in perception that we anticipated last week and was the catalyst for our purchase of US dollars via the PowerShares Dollar Bull ETF (UUP). The market appears to be catching up to our line of thinking and we anticipate adding to this position on strength.

Disclosure: Long UUP

Comments

[Dave Wrixon:]

"The market is adjusting to the new reality that the dollar may be a better relative investment. "

Who told you that? The Tooth Fairy?

Jun 23 05:35 AM