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US Economy: Dollar Index at Top as Flight to safety dominates global investing ( Monday morning market report )

The Dollar index continues above 83 though the Euro is making a fast comeback as renewed hopes of some mutant form of QE by the Fed in June keep investors on edge. The 10Y US Treasuries yield has fallen below 1.5% and though Euro is crossing back thinking the Fed ill fed all OECD development and thus the Dollar must weaken from here, gains in the Canadian Dollar and the Aussie are likely to be the more long lasting even as European PPI comes down to a 25 month low at 2.6% . The current MBS buyback program expires in June but the withdrawal of Fed support may just be replaced by a continuation of the MBS program including other bonds in the near term as a face saver.

A weakening Dollar could boost OECD and Asia growth prospects too as the Indian currency for example has depreciated 25.7% from the end of May last year ( based on the RBI reference rate) to near Rs 55.92 to the USD and may not expect inflation from a weakening Dollar and protect its export markets in Europe especially in the consumption sector

The Factory Orders data for US also supports quicker action as it as revised to -2.1% for March 2012 and another-0.6% sequentially in April 2012. ith production degrowth in New orders firm across all series the rest of Q2 is unlikely to be a positive for the US growth equation. As mentioned in the US Week ahead report, the rest of the week is more about how Europe has survived and how ECB will not be involved in Spain and if Germany will allow pooling of South risk in the EU or growth spending with more deficit tolerance to get into running shape.

The UK economy in the meantime seems to have got itself a lot of detractors with the misfortunes of the Eurozone unable to help it out of the moraass in Global trade eand currency powernomics. The GBP is trading at 1.54 down 5% in two months after a housing report showed up weak prices in April. The Euro has slid in the period from 1.30 levels to even 1.22 levels but the Pound / Euro levels remain at 1.24 to the Euro unable to go back to parity even after last week’s data and Spanish yields. UK has more trade with Portugal and Italy than Germany and France.

RBA(Reserve Bank of Australia) will announce another rate cut tomorrow and the currency is still trading at 97 cents to the AUD despite the earlier 50 cent rate cut and this one.


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