By
Gary
Scott
Each dawn I step onto
the balcony at El Meson and can see a different
view. To the right is Mount Imbabura. Left I see Mount Cotacachi
and
to the southwest these foot hills that sparkle in the morning
light.
I hope you'll join us on our Import Export Expedition for
April 23-30
and share these views. Learn ways to
have your own international business.
This and being able to see different views may be especially
urgent now
because of the currency flash below!
Thomas Fischer of Jyske Bank has just warned me
that the US dollar has
run into problems. He says:
"Time will show just how serious the
trouble is, but we fear that
sentiment may suddenly change over the
next few days and weeks and pull the US dollars towards levels
that we
have not seen for a long time."
Last week, a historically high US current-account
deficit of 225
billion dollars was reported for the fourth quarter alone.
This equals an amazing 7% of America's GDP! This took the
aggregate
current-account deficit for 2005 up from 6.2% of GDP to 6.5%
of GDP.
Moreover, the deficit on the balance of goods and services
for January
was historically high,
at $68.5 billion which was not covered by the capital inflow
of only
$66 billion.
Foreign investors continue to finance these
huge US imbalances, but
below the apparently quiet surface there are fears in
financial markets that the price of this financing could
rise much
higher. This could mean a devaluation of the dollar, which
would make
it cheaper to invest in the US. The alternative would be
significantly
higher US interest rates, which would render US investments
more
attractive.
Recent economic indicators released have put focus on the
Achilles heel
of the US dollar - these huge US imbalances. As yet it is
impossible
to say how serious this change may be. It's certainly too
early to say
how long it will last.
However, a look at Jyske's technical analysis models gives
an idea of
what could happen.
For the first time in a very long time,
their technical models are
beginning to indicate a downwards shift in US dollar sentiment.
Last
week the EUR/USD rate closed above 120.65. This is a signal
in the short, medium and long-term models to BUY EUR against
USD.
This is the first newly established uptrend of the EUR/USD
rate in a
long time. The 50-day moving
average is about to break through the 200-day moving average,
which
creates a so-called golden cross for the EUR/USD rate. This
is another
signal from technical analysis that points towards a change
of
direction for the EUR/USD rate.
The current level of the EUR/USD rate is
precarious. The rate is
between the two peaks in the range between 116.40 and 123.20.
The rate
is mesmerized by a psychologically important top at 123.00
- 123.20.
So there are two fronts struggling for the upper hand of
the EUR/USD
rate. One holds that nothing has changed, so long as 123
stands firm.
Others maintain that focus has already changed, and that
passing 123 is
a question of time.
Investors should be prepared to learn at
all times. If the EUR/USD
passes below 116 dollars per euro, the dollar could rise
all the way to
110 in the short term. But, if as feared 123 is strongly
breached, the
next stop for the rate may
be 126 or perhaps even 128 dollars per euro. On the other
hand, if 123
remains firm, Jyske expects to revert to range trading between
116.40
and 123.00.
In short, the scene is set for some explosive days
in the currency
markets. I recommend that you read Jyske's daily currency
updates. A
lot may happen in the next week. Contacts Thomas Fischer
at FISCHER@jyskebank.dk
Gary
This may be a perfect time for the dollar short MultiCurrency
sandwich
or the Emerging Asian portfolio. DETAILS
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