May 23rd 2011
The US dollar may have had some rest bite recently from its prolonged slide against some of the other currencies in the majors league, but there is still doubt as to whether the recent bounce in its value is one of the ‘dead cat’ variety…
The EUR/USD currency pair has pretty much straight lined from 1.18 to 1.49 in the last 12 months and similarly from 1.42 to 1.67 for the GBP/USD pair. A logical reason for this would be that problems in US are worse than those in Europe and mending the US problems is even more difficult than fixing the Eurozone issues. We have seen the likes of Greece, Ireland and Portugal receiving bail out packages from the other Eurozone counties and the IMF, but who is there to help the US, if they get in trouble… ?
Ok, that does not bear thinking about but if the forever optimistic US consumer is struggling to support its beleaguered domestic economy, then maybe a double dip US led global recession is on its way.
This of course does not mean things can’t get worse in Europe though..far from it, with default on bail out debt a genuine possibility. But until that happens, the US dollar may see further weakness; not forgetting that the green buck still sits towards the middle of the historic 3 year range at 1.40 against the Euro (range, 1.20-1.60) and lower end of the range at 1.62 against Sterling(range, 1.40-2.10).
The flip side being the US will be gaining some benefit from its weak currency by spurring on demand for its exports…
Prospreads professional trading clients, although short term traders, have been generally playing from the short side, when speculating on the US dollar and signs are that is not about to change yet….