Ralph Shell's  Instablog

The lack of comments about dollar weakness at the St Andrews G20 meetings, combined with assurances they will be reluctant to tighten money until the recovery is well under way gave the equities a boost.  In statements last week Ben "Easy Money" Bernanke also confirmed that the US loose money policy will remain in place for quite a while.  This situation gave equities a boost.  The MSCI World Index was up 0.9%, while in the US, the Dow average is soaring, up 145 points.

 A strong equities market has helped the Euro over the past few years.  Once again that pair is traded above 1.50.  For currency speculators, the easy money intentions in the US, combined with the G-20's laissez faire attitude toward the dollar value, means the door is wide open for the US Dollar to be the funding currency in the carry trade.  If we are going to have masses of dollars leaving the US for higher yielding destinations, this is also bearish the USD.

It looks there is some resistance in the 1.59 area.  It looks like the pair is encountering some resistance in the 1.50 area.

During the past week, the Euro had been backing and filling.  Open interest at the CME futures market has been liquidating, down almost 6000 contracts on Friday, so the market has been cleaning itself of excessive spec longs.  The longer term outlook appears to be further dollar weakening so we should be looking for a spot to be a buyer of this pair.  Some to the momentum indicators suggest we are over bought here, but never the less we  want to try a long in the 1.4910 area, risking 100 points.  Our target will remain open while we observe market action.