Friday September 12, 2008 - 17:15:54 GMT
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Black Swan Capital - www.blackswantrading.com
Which Currency Looks Worse Today?
Since the dumping of the gold standard, fiat currencies have been given about as much respect as a red-headed step child. Since then, as many have pointed out, currency investing is like judging an ugly contest. Find the least ugly and buy it; find the most ugly and sell it.
Much of the dollarâ€™s recent rally has stemmed from the idea that other countriesâ€™ economies and currencies are getting uglier while the US economy and dollar is remaining the same amount of ugly. This shift towards ugliness is sparking a shift in capital into the United States and the US dollar.
So when we get negative reports in Europe, the dollar does well. And when a series of poor data points in the US comes to light, the euro does well.
Case in point: retail sales and the US producer price index each came in with smaller than expected totals. Retail sales declined as consumers pull back spending and start to change their mentality from consume, consume, consume to save, save, save. And the fact that wholesale inflation (producer prices) is declining, the need for the Federal Reserve to hold rates steady or eventually move to raise rates fades with each economic misstep.
So today the euro is making out nicely â€“ something that it hasnâ€™t done much lately â€“ at the US dollarâ€™s expense. We tried calling for a US dollar correction a week or two ago, but that proved premature. Will the dollar now take a chance at unwinding some of it recent gains?
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