Friday, November 24, 2006

Will the dollar continue to fall against the euro?

I'll do my best to stay out of the guessing game regarding foreign exchange trends, but I did see this enlightening passage on MarketWatch.com:

... Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said while "momentum suggests there's scope for additional near-term losses, the risk is the dollar bears are getting ahead of themselves."

"There is reason to suspect that as full liquidity returns, the bears will have a more difficult time," he said. The weakness in the dollar over the past few days "appears to be speculatively rather than fundamentally and spread driven."

"Rather than jump aboard what appears to be a southbound dollar express, traders might be better advised to take some profits and wait for the next train," he said.
Currency analysts from BNP Paribas said exporters may have been forced to buy euros after having reduced hedge positions over the past year.

There is a lot of betting that the European Central Bank will be raising interest rates over the next few months, in parallel with speculation that the U.S. will be lowering interest rates, as well as a "belief" that the U.S. will suffer a "hard landing." How much of that "story" that actually comes to pass if of course yet another guessing game, and the betting is likely to be quite volatile in the months ahead. That is of course great news for traders who profit from volatility, but pure heart-burn for investors who depend on a trend.

Of course, most of the "action" on Friday is while so many U.S. market participants are off enjoying the long weekend.

-- Jack Krupansky

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