Monday Update

The US dollar is mostly softer in relatively quiet turnover as many in Europe are still celebrating the Easter holidays.  The main weight on the dollar continues to emanate from divergent interest rate paths.   The premium Germany offers over the US on 2-year sovereign paper was 20 bp at the end of last year.  Last week it reached 116 bp.

During my two week holiday--to Italy--the yen has been the strongest of the majors.  I will look for a place to sell it.   Whether it is the global recovery story or Japanese domestic considerations, I look for the yen to weaken.  On the other hand, the dollar is no prize right now.  I am not too much put off by the S&P outlook.  It is hardly news.  The market too appeared to take it in stride.   Rather I think a combination of soft US Q1 and continued easing by the Federal Reserve is a headwind for the dollar. 

My dollar views have evolved as I reflect on the price action and dirvers.  I had thought a move above $1.46 in the euro would target $1.50.  I now think is is likely and maybe even a $1.52.  I suspect sterling can move toward $1.70.   In that environment, the Australian dollar could move toward $1.10.  

The next consequence of these views is to look to sell the yen on the crosses.  Sterling-yen looks particularly interesting. 

More soon...