the dollar knows no bounds

Foreign Exchange Currency Outlook : Former St. Louis Fed Pres Poole said Fannie and Freddie will probably have losses of about 5% of total assets, or $300 billion. Added to the $500 billion from the private sector already reported, we are nearly at the $1 trillion that the IMF estimated last year. Or is it $2 trillion, as Roubini says? This should be an underlying concern, although you’d never know it from the US Dollar action.

Foreign Exchange Traders are behaving as though the US Dollar can and will pull through this latest crisis, which is not only a vote of confidence in the US system but also a vote of confidence directly for Mr. Paulson. We thought he was being lied to by the Chinese and failed to get his agenda respected there, but he has come up aces on the Freddie/Fannie side. For the dollar to gain 265 points overnight, from 1.4429 to 1.4165, is the proof. Now that the euro broke support at 1.4366 and then 1.4311, an increasing number of analysts are saying the next point for a pause is probably the 62% retracement level of 1.3860. We also see the spike low of 1.3361 from last August or 1.3500 as a nice round number, and other estimates.

We say nobody knows where this move could end.

We get some potentially frightening data this week, especially August retail sales on Friday. Before then, barring an unhappy surprise, attention will be focused on the institutional factors, mostly Freddie and Fannie. Now that Paulson has proven his chops, his every word will get headlines, and rightly. We say the beginning of the end for Fannie and Freddie is a critical factor, and the dollar knows no bounds now.

Bye for Now

Barbara Rockefeller

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