Will Dollar Strength Continue?
The US dollar has rallied significantly against the Japanese Yen and the Euro as risk appetite returns to the market. Since the beginning of the week, the Dow Jones Industrial Average has increased 600 points, leading many market participants to believe that a break above 13,000 is very possible. US earnings have been mixed, but stock market traders are simply happy that at least some companies are beating expectations. There have been no big misses like the one reported by General Electric at the end of last week and instead there have been nice upside surprises from companies like Google. This has been the primary reason why the dollar is higher and could be the reason why the dollar continues to rise in the coming week. The US economic calendar is relatively sparse with only housing and durable goods numbers due for release. Mortgage applications have rebounded and this suggests that sales of existing or new homes could have actually increased during the month of March. Given the lack of any major economic data to threaten the latest rebound in the US dollar, the rally could continue. However, we still believe that the medium term trend for the US dollar is down. With rice prices hitting $1000 a ton for the first time ever and oil prices breaking $117 a barrel, the pocketbooks of consumers are getting pinched by the day. It certainly doesn’t help that this is coming at a time when job security is a premium. Layoffs continue to build. This morning, Citigroup announced 9000 job cuts while earlier this week Merrill Lynch announced 4000 layoffs, matching the slashes at AT&T. This does not include potential layoffs by JPMorgan - Bear Stearns and Delta - Northwest. The US labor market is still in trouble and in a few weeks, this will come back to the haunt the US economy.
