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How On Earth is the Dollar Holding on?
[B]07/02/08 How On Earth is the Dollar Holding on? Analysis by Terry Crawley. [/B] [B]Oil up,[/B] treasury yields down, gold up, Fed spinning their economic wheels, Trichet as bullish as a matador with an attitude, ADP shedding U.S. jobs. Why has 71.50, the last bastion of support on the dollar index, not been touched over the last week of trade? The answer may be in a five letter word, Trust. [B]The world trusts the dollar.[/B] It is the global currency. There is nothing else that you can use anywhere around the world in exchange for goods, services, and products, as you can the U.S. dollar. That trust also means that 67% of the world's reserve holdings, the money that is put inside a central bank's vault to enable them to print local currencies, are in either dollar bills, or dollar treasury notes. If you as a central banker have printed $1 worth of your own currency on the strength of the $1 bill in your vault, you cannot afford to let the greenback depreciate too far. You sometimes have no choice but to step in and buy the USD to protect the value of notes in circulation on the strength of what you hold in reserve. As such we are now seeing the real value of a dollar bill, not in exchange rates, not in Swap interest, but in the role as the King of Currency. The euro is growing up fast, it is a baby that has grown up quickly, but it may have just got a little ahead of itself in what can be expected of it. The euro-zone is not a happy place for all right now, member states are divided on the path to take, and some are on the brink of recession. Raising interest rates on Thursday may be a lot easier to do, than it will be to hold. [B] The markets[/B] have shown us technically that they are not really buying into the euro gaining in value from here ahead of the decision, and with what seems like a shoe-in to most, that would maybe seem surprising. The smart money have not bought the rumor, and with the dollar fundamentals as weak as they are right now that is signaling to me that this euro hand may not hold up. I'm folding, for two reasons; 1. The momentum off this decision, whatever it will be, will last for months to come. 2. I have not seen the dollar this robust, ever (20 years of commodity trading), in the face of such dramatically poor fundamentals. Take care on Thursday, try to keep away from the pushing and shoving. The markets really are struggling to find fair value on the Dollar and until they do just be happy to trade the market momentum. Watch the test of 1.6050 if they do raise, and watch the amount of market participation at that level. To hold up here the swissy and the pound are going to need to be going gangbusters as well. If not, and if the markets just do not step in and sell the dollar index lower, I'll be looking short over the course of the summer. Do not get caught up in the moment that the news break, (Unless they stay on hold, and if that happens I'll be looking at 1.5400 by next week!!). Off to bed now, get tucked up early, we need to be bright eyed and bushy tailed on Thursday morning. Goodnight. The morning web seminar has been moved to a 07:30 start so that we can trade it live with you if they do not raise. The 7 o'clock club is posted each night. [url]http://www.thelfb-forex.com/content.aspx?id=14542[/url] It may not be everybody's cup of tea, but it does cut to the chase, it offers an easy eye view on what can be a boring market sometimes, and tries to get focussed on what is important. Thank you very much for the support, it is genuinely appreciated by all of us at TheLFB. [B]Terry[/B]
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