Weaker than expected Retail PMI figures out of the Euro-zone continued to push the euro lower against the dollar, but the decline was minimal. EZ Retail PMI slipped below 50 registering at 49.9 versus expectations of 51.1 as retail sales in the 12 member union fell for the 5th month out of 6. Amongst the region's big economies France and Italy saw small increases but Germany hobbled by record unemployment reported a decline from 54.8 to 51.6. Nonetheless, the euro only declined slightly against the greenback after losing more than 100 points on Friday as traders pondered the next move.
While dollar is presently enjoying a small carry trade advantage against the euro, the key risk for dollar longs going forward is the possibility that US growth had peaked. Last Friday's disappointing NFP's and the weak Empire and Philly numbers from two weeks back should give pause to all dollar bulls betting on sustained US growth and continued monetary tightening by the Fed. For all of these reasons we remain only the faintest of dollar bulls and continue to believe that for the time being most of the dollar gains have been made.
Over the week-end we came across a very interesting piece of macro research courtesy of Alex Wallenwein publisher of the EURO vs. DOLLAR Currency War Monitor. Mr. Wallenwein argues that the recent dollar rally couldn't have come at a better time for world's Central Bankers who need to unload their USD reserves. He writes," The reality is that continuing dollar-weakness now could be catastrophic for the entire world-financial structure. Asians and other countries desperately want to unload their tremendous dollar surpluses - but they can't, for fear that any larger-scale sell-off might cause a rush to the exit doors. Therefore, what they all need is a temporary reprieve, a carefully engineered environment of apparent dollar strength that will allow them to quietly unload what they could never openly propose to sell - their dollar reserves." If Mr. Wallenwein is correct, traders chasing dollar strength may be in danger of selling at the proverbial bottom tick in the EUR/USD. Still, with EZ fundamentals hardly supportive so far and US eco data continuing to register expansionary results any meaningful turn in the EUR/USD direction is likely to take some time.