the euro fall under the previous lows

Foreign Exchange Currency Outlook : We don’t know what will happen to Lehman or whether it has a lasting effect on the financial sector landscape, let alone the US dollar. It seems that after the market accepted the Fannie/ Freddie conservatorship on Sunday night and took the US Dollar up instead of down, the Foreign Exchange market can swallow just about anything these days.

And that leaves us with housing and oil as the key influences on the dollar. The housing problem is getting fixed. Maybe it’s not getting fixed well or in accordance with some of the principles we’d prefer to see, but action is being taken and the sense of Depression-era dread is lifting. Yes, foreclosures are still rising and additional banks will fail, but overall, the US economy is going to survive this crisis.

Oil is falling. We guess that Masters is right and the threat of regulatory action against speculators (if it’s fair to call indexers “speculators”) has caused their retreat. They will go play in some other sandbox for a while. Demand has fallen with greater elasticity than we thought, and OPEC has behaved in a good-citizen manner. The only wild card seems to be Russia and its desire to bully Europe, but we have few doubts that a change in supply chains is in the works. This is exactly the kind of thing at which the US excels, or used to, behind the scenes.

This Panglossian outlook requires that the euro fall under the previous lows (1.4057 yesterday and 1.4044 the day before) and thus maintain its downtrend. The worst of all possible outcomes is not a dollar rout on the Lehman news or any other news, but rather a sideways move that fails to confirm ongoing trendedness. We need to see this week’s lows get broken by the end of the day Friday and by now have the luxury of being able to sit out a little sideways action as long as it doesn’t last into the weekend.

Bye For Now

Barbara Rockefeller

Best Exchange Rates when Buying Dollars visit IMS Foreign Exchange