Will Central Bankers Shake Up Their Investments in Q3?

A Bloomberg on Monday emphasized how central banks, flush with dollar reserves, have put massive amounts of their reserves in the Euro during the past quarter.

On Friday there was a different version of the same story with the IMF as the source, stating that the dollar's percentage of global reserves had been reduced to 62.7%, a 10-year low.

This is what the central banks did when the dollar was 10% higher. That is history, and historians look backwards. Successful traders look forward. What has happened in a point of reference for what might happen in the future, but the market is dynamic, not static. Actions produce reactions.

At the beginning of the last quarter, Toyota (TM) was not warning that the March 2010 year end would show a $5 billion loss, nor did we have Sony (SNE) saying they could not profitably compete in the US market. Currently the French Airbus company is dealing with the consequences or the Euro's appreciation, trying to compete with Boeing (BA) despite an 11% increase in prices. These are just a few examples of the changes caused by the different valuation of currencies.

The earnings season is again with us, and positive expectations are pushing the Dow and the S&P upward to some magic psychological bench marks. The weaker dollar helps, as foreigners are able to buy this country and its businesses at a discount. The higher global equities seems to have helped the Euro recover from it's early morning slide, and once again we have rallied to trade above 1.48.

We had wanted to establish a long on the low 1.46 area but the market did not cooperate. Now as we again test the season high above 1.48, we are baffled at the inability to follow through. Perhaps we are merely stuck in a trading range just under the season high. It is hard to figure out any fundamental news coming tomorrow that will set this market free, so we will just watch for a while.