The Mighty Greenback Gets Some Breathing Room

The dollar has surged dramatically against the Euro and registered more modest gains versus the Euro. I think a top is now in place for the Euro and the comments by Trichet yesterday were the catalyst for the crash of the Euro.The market action reflects the economic fundamentals away from the US. Economic data released in Europe and Japan recently are reflective of economies slowing quickly and even tipping into recession. The central banks in each country have yet to respond to the changed set of circumstances and the economic weakness which has derived from the global credit crunch.

In addition, the crash of oil and gold has some suggesting that the bull market in the commodity market has been broken. If so, there are many short the dollar against commodity currencies such as Australia, New Zealand and Canada who will soon be seeking cover.

Longer term, the US faces some very severe problems. (All declining empires do.) In the short and intermediate term, though, it looks as though the policy responses to the credit crunch on this side of the ocean have been more meaningful and more decisive than that of the ECB. That policy advantage by the Federal Reserve should give the dollar breathing room for the next 12 months or so.

Comments

[xsuddensam:]

I certainly wouldn't be piling in. It's way over bought and the underlying U.S. financial condition is shakey at best.

2008 Aug 09 08:12 AM

[Elaine Supkis:]

The US 'shakey at best'? HAHAHA. How about collapsing? Our trade deficit will resume rising back to nearly a trillion a year thanks to the 'strong dollar' and our federal deficit is heading in the same direction at the same time. Operative word here is 'bankruptcy' not 'strong dollar'.

2008 Aug 09 09:17 AM

[Dan Walker:]

Elaine, getting Pelosi re-elected, considering she is currently viewed as the biggest impediment to western civilization on the horizon, will not be easy. Perhaps your efforts would be better spent there.

2008 Aug 09 10:25 AM

[secmaven:]

There will be no international financial crises during the Olympics. The Chinese are at work.

2008 Aug 09 10:30 AM

[User 201843:]

After the Olympics, hold on for a painful situation with reality. there has to be a "pay day". Go to gold is most probably the only choice.

2008 Aug 09 12:50 PM

[Dan Schmeidler:]

Going to gold would appear to be the obvious choice considering the feds policies to support the financial system at the expense of the dollar. But one can not and should ignore that the credit crunch is now a global issue as a result of the US trade deficit getting substantially smaller. Gold right now is trading at the low 200 day moving average of $850. That average can be deceiving as a good entry point. Gold could easily fall below $800 and even further considering where it was in 2004 to 2006. Commodities are not hot market plays right now. And the dollar is on a rebound that could wipe out a lot of the losses it had against other currencies over the last year or two. It's insane to be thinking of that kind of market action in an environment of a collapsing US financial system. But it could very well unfold. Look at how the equities of the garbage US financials are trading as a desparate attempt to pump up their liquidity in order to restore the old status quo of the US as the great nation of debt. These are dangerous times to bet for a weaker dollar and stronger Gold.

2008 Aug 09 11:59 PM

[messy:]

SECMAVEN....There will be NO crises during the Olympics because most of the the BIG 8 LEADERS...ARE IN CHINA spending their taxpayers money. What else do you expect from the world leaders these days? A borrowed stimulus package?

2008 Aug 11 07:28 PM