Coelacanth

Historic Strength for the Dollar

Excellent work Bespoke.....hope you guys did well this morning getting long dollars vs. EUR, Cable & AUD.

Market Predictions: 'Crazy' About the Dollar

Hey Paul,

You bring up some great points.

I could be mistaken but I thought the increase in minimum wage was going to get phased in over time. Plausibly this could mitigate wage pressures in the near term keeping us out of a wage-price spiral situation.

I agree with you about the auction rate securities mess. Pretty daunting. I think most companies are working hard to re-imburse investors though and it appears the Fed is going to keep lending to commercial banks for some time to come.

My sense about the negative effect a strengthening USD would have on American exports is would have to appreciate much, much further for that effect to be truly palpable. The flip side is a stronger dollar will help to tamp down domestic inflation and gives Americans more purchasing power. We'll see.

Market Predictions: 'Crazy' About the Dollar

MarkMedayski,

So the truth is revealed.....you're a Jew hater and your opinions read like some hack partisan blogger.

Market Predictions: 'Crazy' About the Dollar

MarkMedayski,

Interesting take. So you basically want euro to go 1.70 thereby choking off and killing euro-zone exports even more so than is happening now? Great idea.

Interest rates to 10%? Too funny. While the ECB will be lowering rates in 09' - 10'.....ours will be rasing them.....making America's assets more attractive than the euro-zones.

Euro-zone unions aren't doing you any favors either. Because you're so unionized compared to us "stupid Americans" many euro-zone employees have already won outsized wage increases. Betcha can't guess how euro-zone companies are going to compensate for higher unit labor costs. Can you say wage-price spiral?

EU Industrial production, manufacturing, consumer sentiment, consumer spending, business confidence....all falling off in dramatic fashion.

The EU is about to find out if the twelve gold stars on their flag are in deed representative of unity and perfection.

Market Predictions: 'Crazy' About the Dollar

Excellent piece Louis....and yes I agree the euro has much longer slide to go. Siesmic shifts don't occur like this all the time and investors would do well to take advantage of what's happening now.

It was interesting this week to see euro-zone, French, Italian & German GDP growth for the 2nd qtr. were all negative. Despite Trichet's hawkish stance I suspect euro-zone slowing will become more and more pronounced in the coming weeks and months The cacophony of calls to lower rates will only get louder and louder.

The BOE's quarterly inflation report this week was striking in how dovish it seemingly was....almost hinting rate cuts may come even before CPI, PPI and import/export input indicators show signs of slowing. The idea being that as long as it was evident that inflation had peaked or was cresting....rate cuts would happen sooner rather than later.

My suspicion is the same may happen in euro-land and that markets haven't priced in this possibility.

A Closer Look at the Dollar Rally

As a matter of fact the euro-zone trade deficit has been ballooning in the most recent reads due to increased imports and lower exports (a strong euro has been killing exports)

All democracies see an erosion in their manufacturing base as they mature but this isn't the main catalyst to a currency's rise or fall.

Yes...Spain, Ireland & England are all seeing an huge unwinding in their housing markets. 15% of Spain's GDP is it's housing sector. Ouch!

You're minimizing the euro-zone's weakness.....industria... production, manufacturing, consumer spending/sentiment & retail sales have all fallen off a cliff and point to pronounced future economic weakness. Many economists are now saying euro-zone growth probably contracted in the 2nd qtr. In addition, euro-zone businesses are increasingly defaulting on their commercial loans.

A massive slowing in consumer spending suggests the euro-zone isn't currently consuming "half of it's own production". Additionally exports to emerging markets are slowing and England, where roughly 15% of euro-zone exports have gone in the past, is pulling in the purse strings.

Well....you don't have to guess or invent conspiracy theories for why the $ has had such a spectacular run of late.....most folks in trading circles know why. After the ECB's rate decision last week (and in particular Trichet's accompanying statment and news conference) investors began paring back bets the ECB would hike rates again.....to boot, based on medium term fundamentals, the euro is ridiculously over-valued against the dollar.

It's not so much dollar strength you're seeing as much as the euro losing value relative to other currencies....understa... the difference? Yes, it is based on fundamentals....namely the deteriorating fundamentals out of the euro-zone. Most if not all the bad news has already been priced in to the dollar.....can't say the same for the euro.

Has the Dollar Bottomed?

German consumer confidence at a 5 year low, Euro-zone & German June PMI reads all below 50 (denoting a contraction of manufacuturing), German Business sentiment IFO reads dropping below the psychologically important 100 mark, Industrial output for the euro-zone falling 3 months straight, French consumer spending falling off, etc.......many economists out of the euro-zone are now saying the EU block probably contracted in the 2nd qtr. (As a reminder.....the U.S. hasn't experienced negative growth yet)

One could argue that between the euro & dollar it's a "battle of the ugly ducklings" at the moment but it seems clear to me, despite all our troubles that are pretty much all priced in to the buck by now, that the euro is wildly over-valued relative to the dollar and yen given their medium term fundamentals.

It won't be a straight line but don't be surprised to see the euro around the 1.45 - 1.50 handles in 6 months to a year.....if even that long.

Confluence of Factors Boost Dollar Wednesday

It's the Elliot Wave made flesh.

Despite the dour mood of CEO's at financials recently reporting 2 qtr. results ,none the less, investors are eagerly lapping up all their shares. Didn't that happen in the 1st qtr. too?

Dollar and Euro: Different Week, Same Drivers

Stern is a well known inflation hawk so I don't think anyone was surprised by his comments. As such I think the markets discounted what he said to some degree.

I haven't checked futures lately but I think most traders don't expect the Fed to hike rates this year in the U.S.

Interestingly....the tact most G-7's seem to be taking now is "we're leaving rates on hold expecting slowing growth to reign in inflation in the medium term".

Even though euro-zone & German PPI came in hot last week Trichet has said that he's willing to tolerate a flaring up of inflation in the short-term to see it moderate by next year. Unless inflation gets really out of hand in the coming months I don't expect this to change.

On Friday, futures markets should market participants expect a 78% chance the ECB will hike again this year vs. 55% last week. The change came on the heels of Trichet sounding a bit hawkish after Germany released their PPI numbers. I think the markets are reading too much into this. IMO there is no material difference between "we have no bias at this time" and "we may need future rate hikes".

A Surprise in Store for the Dollar?

What I love about days like today is how no one is paying attention to a rapidly deteriorating situation in the euro-zone.

As Ms. Lien correctly points out.....French, Italian (and Germany) all showed pronounced weakness in their industrial output for May and there is every indication that the euro-zone may have contracted in the 2nd qtr. (As a reminder...the U.S. hasn't experienced negative growth yet).

Too boot, Mr. Trichet has indicated that he is willing to tolerate a flaring up of inflation in the short-term to see it moderate in the medium term (early to mid-09). IMO as the fundamentals continue to deteriorate in the euro-zone, traders will begin to "price-out" further rate increases and the euro will fall in value.

IMO the greenback appreciating against the euro will be less a reflection of dollar strength as much as it will be a reflection of the euro losing value against other currencies.

It's a contrarian play and a bit dicey but I think a trader could make a very good case for shorting EUR/USD from the 1.59 - 1.60 handles.

Good work Ms. Lien.

As Dow Breaks Bear Stearns Low, Euro / Yen Hits High

The EUR/JPY looked ridiculous up there in light of struggling global equities. Seems like ultimately it might gun for 170.00. I might be looking to get short around 169.95 - 170.00 depending on what the ECB does and says next week. If the IFO reads of last week are any indication it looks like the euro-zone is finally cooling off.

Carry traders have had it good for a long time. Yen crosses are looking decidedly wobbly and a rude wake up call may be just around the corner.

US Dollar: 5 Reasons It Will Not Hit a New Low

I could see the dollar possibly hitting a new low late 3rd qtr. or 4th qtr. but not before then.

The real question for me is how heavy an impact ultimately will the continuing, relentless erosion of household wealth be on consumer spending. IMO this is the key.

I gotta tell ya.....as sanguine as some in the market are about there not being any fresh dollar weakness, I'm just not as sanguine. I just don't think we've yet felt the full impact housing & credit will have on U.S. economic fundamentals (not to mention inflation and rising unemployment).

That said, given the the extraordinary measures our Fed has taken to stave off financial panic....its not a stretch at all that currency intervention would happen if the buck were to resume it's earlier death plunge.