news01-11-07 - Euro(EUR Traders Insecure Ahead of ECB Rate...

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Euro (EUR) Traders Insecure Ahead of ECB Rate Decision WEDNESDAY, 10 JANUARY 2007 21:57:32 GMT Printer Friendly  |  Email Article  |  RSS  |  Previous articles   Written by Kathy Lien, Chief Strategist Euro (EUR) Traders Insecure Ahead of ECB Rate Decision US Dollar (USD) Rallies After Stronger Trade Balance Canadian Dollar (CAD) Rises Despite 19 Month Low in Oil Prices US Dollar The US dollar has rallied 400 pips against the Euro in a little more than a week with the latest jump being driven by the smaller than expected trade deficit. As we pointed out yesterday, the four percent drop in the trade weighted dollar during the month of November has helped to deliver the third straight monthly improvement in the deficit by boosting exports and restraining imports. The low level of oil prices has also kept the value of crude imports virtually unchanged. Former Federal Reserve Chairman Alan Greenspan has often said that one of the few ways to fix the trade deficit is for the US dollar to weaken. Now that it has weakened, we have seen its impact on trade and its potential contribution to growth. As long as the trade balance does not deteriorate much in the month of December, we could see 3 percent GDP growth in the fourth quarter. The market is very bullish dollars now after having recovered nearly all of its end of November gains, but we will need to see a strong retail sales report on Friday before the EURUSD can retreat back into its Summer of 2006 trading range. Comments from Federal
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