The US Dollar has no significant risk as low manufacturing and job data is already discounted
Joe Weinman
Jun. 29, 2008

The market is scared about the weak and vulnerable US dollar and what it will do when the under performing manufacturing and job data is announced this week.

According analytical and quantitative models, US dollar does not have a lot of risks. The weaker US economy and its signatures are already built in the financial market.

The thing to watch is who is leading in the bear market? It is the stock market that is signaling severe recession if not depression. At the same time the bond market is also experiencing one of the worst bear markets. Combine the two; you can see easily there is a support for the dollar even if a deep recession is imminent.

The G8 has agreed to hold dollar at this level. The European Central bank (ECB) will not allow Euro to trade above $1.60. The Japanese Yen is in a fresh bear market with slowing economy. The German business and consumer confidence is down, putting sever pressure on Euro.

Interestingly, the Federal Reserve is US has signaled higher rates when the stock market is signaling a deep recession if not a depression. Most likely they will confess their mistakes and lower rates to zero percent from the current 2 percent in panic like the last year and the beginning of this year. But all that is already discounted in the currency markets. There is nothing much left to cut rates – only 2% is all that they have at this stage.

US Dollar will probably build a solid base here as gold and other precious metals might experience a long-term top. Because of severely accelerating inflation in energy and food, the gold and other precious metals may have another bull leg but US Dollar will hold its ground between 72 and 74 in the Dollar Index. Simply put residential real estate will rebound modestly with new home coming back strong. But the commercial segment will collapse over time.

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