I would have expected 1.6 usd/euro now. Bernanke just told us he cares not of inflation and will lower interest rates no matter what. Yet a weak, weak fall in the dollar. So confused.
IMO the EUR-USD is more influenced by oil prices. Rate cuts and recession worries are secondary. Look at historical Europe vs. USA unemployment levels, yet the Euro rallied. Look at historical Eonia vs. Fed Funds rates, again the Euro rallied. If oil doesn't get way past $100, and this is the most likely scenario; the Euro may not get past 1.5000, even with a 0.50% rate cut.
What I have learned, is that it has nothing to do with "fundamentals"...which are lagging indicators and subject to interpretation. It is all about the math...the USD capitulated, it may retest its low, but the numbers are saying it is rising. Alot of pros in Toronto went long the USD recently. When everyone is bearish, I turn the other cheek. I was bearish the usd for years and years, when this was unpopular. I am very mistrustful when the masses all become bearish...all the bad news is out by then. Works for me.
In other words, it's been priced in. Instead of listening to Ben Bernanke, Henry Paulson & the politicians, just look at the trend of actions. It's very obvious that the powers have ZERO intent on supporting the dollar or having a strong dollar policy. In fact, I think the goal is to destroy the dollar for an easy transition to the Amero. But of course, in the markets, it never moves straight down. So a decent bounce is expected, hence going long dollar for the intermediate is a smart move.
I don't know about the Amero, but it would be convenient if the dollar fell enough to help prop up real estate values.
For the dude who suggested a causal relationship whereby rising crude prices cause the dollar to be weakened: Crude is priced in dollars (ie, the correlation you observed works in the other direction). And, the dollar didn't react that much because there is deep interest in seeing it hold, namely by the largest holders of dollars: in the mideast and china. But if China starts to see higher inflation they'll have to stop printing yuan to buy dollars in the peg trade, which will take one of the biggest secular/structural supports out and sink it to new lows... speculation on this shift is one of the big drivers right now in the gold trade
All those long-Euro positions that got tiger-teamed by the central-banks in December are still licking their wounds.