As we move into the last quarter of the year there seems to be a slowing in the Dollar’s weakness and I’ll hazard a call suggesting it has already found a low. That’s not only against the yen but against the European currencies also.
The general signs of a modest improvement in economic conditions have continued over the past few weeks. Statements from the IMF have become more bullish declaring that the global economy has begun to expand, led by Asia. They point to an improvement in financial conditions in the market in general but warned that the pace of the recovery is expected to be slow.
Economic releases continue to be somewhat volatile but within the industrialized nations the U.S. is still leading the way out of the doldrums while European data still remains weighed down by higher unemployment while industrial numbers remain stable, but more with a soft edge.
This is normal. The US tends to be 6-12 months ahead in economic cycles and the market still looks for better numbers to take the dollar higher.
Even Japan’s numbers have shown a turn for the better. The Q3 numbers showed a modest improvement in manufacturing conditions, unemployment dropped by 0.3% to 5.5% and household spending has turned higher, reflected in much better retail sales numbers. However, there is still a long way to go before Japan can be competitive with the yen at relatively high levels.
I left you suggesting that the Dollar would see its low around the end of the month and so it was. I have been eyeing the Dollar cycles which are finding a low right now. While there is the small chance that it could still dip against the Europeans, if seen it will be brief and looking at the year end horizon I am looking for a higher dollar in general, not only against the yen but against the Europeans also.
As for the yen versus the Europeans there may still be some risk of minor gains by the Yen, but in general I don’t expect any excessive move and actually feel that before long we’ll see the yen begin to weaken against the Europeans also.
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