Coelacanth

U.S. Dollar Shaking Off Risk Aversion

wyosteven,

On balance I would have to agree with Ms. Lien.

In addition to defense spending, non-defense capital goods, excluding aircraft rose 1.4% after a decline of 0.1% in May. Shipment of these items rose 0.7% after a 0.2% gain the month before.

Clearly the numbers reflect more than military spending and suggest U.S. factories are holding up due to increased exports overseas. If you want further proof than check out 2nd qtr. & 3rd qtr. results of companies like Caterpillar and Monsanto.

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.