Prague Twin

Friday, May 12, 2006

A Litlle Good News, very little.

There was definately some profit taking on the stock market this week, bringing it back down to 11,500. I expect that there will be a retracement of that loss today (Friday). Why?

Well, the dollar did not recover and trigger a mass profit taking from foreign investors. It was wishful thinking on my part that it would. No, the Euro now costs $1.29, a full cent higher than last weekend. I had expected $1.2850 to provide some resistance, but it went right through peaking out at $1.2950 a couple of hours ago. It looks like $1.30 and higher is a real posibility. This provides perceived value in the stock market for foreign investors as stocks now cost less in their own domestic currency.

Economic data out of the states this week was mixed. Government revenue on Wednesday was excellent, but did not exceed expectations. A feather in the cap, however, for the supply-siders. Today's lower than expected trade deficit number ($62 billion, $5 billion less than expected but still one of the highest months on record) gave the dollar the briefiest of releif before the University of Michigan consumer sentiment tumbled 8.4 points to its lowest level in 7 months, which was right after Katrina. Removing that outlier, we now see the lowest consumer sentiment in the US in over 3 years. Import prices shot up by 2.1%, more than double the expected number. Inflation clues just keep piling up. Like the first few drops of rain. Ten year bonds are also gaining on inflation concerns. Commodities continue to set new quarter century highs, especially gold and copper.

So the Euro now sits at $1.29 and there is no relief in sight for the dollar. I predict that before the end of the year, we are going to see something close to a record high for the Euro against the dollar. Significant changes announced at the G7 coupled with mixed data out of the states and stronger data now coming out of Europe means the dollar has its back up against the wall... again.


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