Dollar Heavy, Sell Shallow Bounces Prevails

The US dollar is lower.  If that sounds like a broken record is should.  The euro is higher today for the eighth consecutive session, the longest streak in several years.  The dollar's weakness ought not be seen as a flight from the US as US asset prices--bonds and stocks--continue to do well. 

Nor do I think carry really captures what is going.  For the past three weeks, the four strongest major currencies are the Swiss franc, New Zealand dollar, the Japanese yen and the Australian dollar, in that order. 

The dispersion of the performances are not that great.  They range from 3.6% for the Swiss franc to 2.9% for the Aussie.  If carry trades were the prevailing strategy, one would not expect the low yielders and high yielders to have appreciated together. 

Momentum strategies prevail.  Buy what is going up and sell what is going down.   That said, in terms of drivers, I would continue to emphasize the divergent monetary policy paths underscored by Bernanke yesterday and the strong German employment data and continued stronger than expected German PPI.   

This key driver could be blunted or mitigated by the European debt crisis under certain conditions, such as the crisis spreading to Spain in a material way, which it is not at the moment, or the sense that a restructuring is imminent, which is not the case at the moment.