June 16, 2006 The two fundamental points of this newsletter are: 1)The American stock market is rate driven. 2) After testing the area of support at 1.24/1.25 (dollars per euro, eur/usd) the euro will turn higher, well beyond 1.30, probably above 1.32/1.33 Explanations and timing American stocks and dollar are related in two ways: A) What is good for the dollar, is also good for the Dow Jones. This is not the current case: this happens when the demand for dollars is present to buy American stocks. This usually happens when the p/e is very low, when the economy is growing and when the Japanese economy is weak. B) Classical scenario: when rates are increasing, the dollar goes up because strangers will put money on deposit with American banks and not into the American stock markets. Moreover American people sell their stocks and put money into more liquid investments.The p/e is higher in this case and there are inflationary symptoms and the Japanese economy is stronger. This is the current case and there is an evidence of an INVERSE relationship between the US dollar and the Dow Jones (Nasdaq etc.) We believe that scenario B will probably continue up to the end of October 2006 or just before, where the dollar is stronger and stocks are weaker. Moreover eur/usd will reach 1.25 and possibly 1.24 (these are of course only our opinions) . In any case we see Euro/US$ above 1.30 for January 10, 2007, with a weaker US$ and a MODIFICATION of the current scenario from B to A. In this case, from October we should have dollar moving in the same direction as the American stock markets. At the same time we should have gold very strong and the silver even stronger than gold, because of higher demand from Asian silver buyers. Also in our opinion there should be for the autumn a slight weakness in the Chinese economy, with oil and copper moving to the downside. So there are not bullish perspectives for the end of the year for the American stock market and for dollar, nor for metals and energies on the whole. Euro is perhaps the strongest money now, followed by the swiss franc and pound. Good luck.