Monday January 23, 2006 - 10:54:32 GMT
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Black Swan Capital - www.blackswantrading.com
Weaker dollar: Two points...
“Too clever by half.”
Two points that may represent the key drivers of dollar weakness/euro strength this morning:
1) US housing and Mr. Consumer concerns:
“The downturn in home-equity loans, she [MacroMavens Stephanie Pomboy] further notes, is part and parcel of the recent overall sharp retreat in consumer borrowing, which has suffered its first quarterly contraction since the recession of 1991. And credit, she notes, 'has come to replace wages as the driver of consumption. Last year, the $375 billion gain in disposable income fell way short of the $500 billion increase in consumption,'" writes Barron's Alan Ableson.
2) The expectation, real or otherwise, that rising oil prices, a growing drag on the euro-zone economy, will morph into inflation and the ECB will aggressively hike as a result.
In the chart below you can see there has been a rather tight correlation between the dollar and crude i.e. higher crude and weaker dollar. The black line represents crude oil futures and blue represents the US $ Index (inverted):
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