Interesting. If the dollar is more or less holding it's own amongst reserve currencies but it has lost more than 40% of it's value over the last few years not to mention the growing volume of outsourcing and imports, would'nt you think that global dollar denominated reserves should be increasing. regards f9
It's just a typical short covering rally trigger by the first bullish sign of the dollar (rate may stop lowering). Too many people have made money shorting the dollar and they're very anxious in seeing their profit vaporize and thus an inevitable short cover rally. Once all the weak hands have been shaken out the dollar would probably resume it's downward course... I guess it would probably only be a 10% or at most 20% rebound against the Euro...
There is really little fundamental evidence that the economy is improving. So at some point the dollar will go lower and stocks begin to stall. Wait until global tensions start heating up over inflation. There could be some real fireworks.
Why does it not keep moving lower, because you said it won't? :eek: The problem is the deficit, and we keep printing vast amounts. Just like a stock, if you keep issuing shares, eventually the price craters. Nothing goes straight to zero, so the dollar bounced 6 cents. I bet it will be 2.00 against the euro within 2 years.
Iranian abandon of US$ challenge dollar's position as the dominate currency(established in Bretton Woods Conference in 1944) in th world and will cause a ripple effect in commodities, currency and stock market besides political consequences. 1. US dollar will speed up its depreciation as FED keeps on printing greenbacks. Other countries no longer have to reserve dollars to buy commodities esp. the small countries short of natural resources like Japan. 2. Euro and Japanese Yen will go up of course. 3. Inflation in US will get much worse. As Graham said in his famous book "Intelligent Investor": "Rising prices allow Uncle Sam to pay off his debts with dollars that have been cheapened by inflation". 4. Weak dollars will lift up the commodities price. * What if other OPEC countries abandon dollar as well? * What if dollar is removed in other commodities' transaction as well? 5. US stock market will head south with expensive raw materials. However Aerospace & defense stocks such as LMT and RTN will do well if there is a war. When will US economy recover? Who knows. Bush administration is NOT likely to allow such a situation last too long. Two carriers in Persian Gulf served as a "reminder". But the war will send oil price to the sky. The only thing useful that Bush did was the energy bill, i.e. turn corn into ethanol. Most Middle East countries must import agricultures from US.
My opinion is that the EUR/USD pair has reached its equilibrium level, and we are now in a sideways market, that should last for years unless there is a big event happening. The most direct cause for the break in the EUR trend is psychological, that sounds like an obvious thing to say, but it's important to keep it in mind. US fundamentals have not improved, simply now, it is explicitely known that they are bad, and there is therefore no more psychological effect in the release of bad news. Besides, European stock markets have not shown a level of independence from the US market that would entitle the EUR to take over the position left vacant by the USD as a primary reserve currency (and this fact is purely psychological, european investors are still in the mindset of considering the US market as the centre of the world economy, a mindset asian investors don't necessarily have, at least not as much). Furthermore, I come to think that the level of 1.6 is natural for the pair as it coincides with the ratio of population between the Eurozone and the US. It does not reflect yet the ratio of GDP, but it will in the near future since the Eurozone grows faster than the US (because of eastern europe). So my guess is that we will have oscillations between 1.5 and 1.6 with likely some ventures into 1.4 and 1.7 (or even beyond). There will definitely be some volatility in the years to come, at least until asian currencies come to float freely (I mostly think of CNY and INR), but that may take about 10 years. After that EUR/USD will just stabilize at around 1.6 (or slightly higher if the eurozone goes on expanding).
Relative is the Keyword here. When all countries' economy are slowing down b/c of US recession, USD will be relatively higher.