New Found Strength in Dollar
How long will new found strength in the US Dollar continue? To venture a guess I would say perhaps longer than you would reasonably expect looking at the condition of the US economy and the price of crude oil.
The Dollar has put in a strong performance this week as bad news about the US economy was not as bad as the market expected. The Euro traded as high as 158.20 as recently as Monday, May 27 (US markets closed for Memorial Day) and is trading down to 1.5490 as I write on Wednesday.
The dollar has also put in a good effort against the Yen, trading up from lows of 103.25 to highs of 105.86 so far today.
A little better than expected show of growth in the US economy and the apparent end of the Fed cutting interest rates seems to be behind the Dollars strength this week. The US GDP growth figure for the first quarter of 2008 was revised from up 0.06% to 0.09%. Recent comments from Fed governors suggest that the Fed is becoming increasingly concerned about an increases in the US inflation rate and that further interest rate cuts may not be forth coming at the June Fed meeting.
The Dollar cleared resistance with the Yen at about 105.45 this morning and seems to be good to go to 106.50 or so on this move. A breakout above 106.50 could clear to way for the Dollar to push towards 110.00.
In the Euro 152.84 seems to b the next significant figure to be looking for. The Dollar price action in the Yen and Euro seem to be closely tracking the US stock market performance. The Dow is up about 124.00 points as I write at about 2:30 in the afternoon.
Could it be that the Dollar bears have just become too bearish? While there is still plenty of bad news around, the continuing fall in housing prices for example, overall the news is not quite as bad as anticipated. How far a bad news but not as bad as expected rally can take the stock market is any one’s guess.
Forex traders will have to respect the recent stock market action, however, as the correlation between the movement in stocks and the Yen and Euro remains high and forex charts suggest that the Dollar move has further to go.
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