[Dan]

The Dollar rally from late last week on firmer US rates and a strengthening global economy has run into heavy Dollar selling. The World Bank forecast for the global economy for 2009, released yesterday, contained enough news (bad) to give traders pause and to prompt overdue profit-taking in global equity and commodity markets. With the quarter's equity and commodity gains at risk and a quarter-end looming, markets rolled over. For the first time, equity weakness HAS NOT generated a flight to quality that includes Dollar buying. Official entities are reported to have sold Dollars overnight. The Dollar selling continues today. When Dollar weakness is not viewed as good for equities nor weakening equities good for the Dollar we are in a very different market mindset. No one has commented on the Dollar weakness in light of the problems in Iran, but Mr. Ahmadi Nejad pals around with Russia and China. Interestingly, Russian First Deputy PM Shuvalov said that the Central Bank and Government of Russia are workig on new steps to diversify FX Reserve Investments. However, the constant drum-beat of Dollar doom seems wildly overplayed when today's two-year Treasury auction was more than 3x oversubscribed.

While strengthening of the JPY and CHF is consistent with generalized risk reduction, the CHF strength will generate further currency gyrations because of the vulnerability of Eastern Europe to CHF debt and deflationary forces. On the other hand, the Sterling is moving sideways against the Dollar as the EURO rallies. In other words, there is a technically significant weekly "key-reversal" in EURO/GBP. A weekly close above 0.86 (up from a low of 0.8400) on this cross points to a test of .9050 and a close above 0.91 points to a test of par. The BoE has been happy for the reprieve in recent weeks but tax-payers in the UK (and US) are not as sanguine as the US investment bankers.

The outlier "green bean" in the sea of equity red that is today's list of equity indexes is India's Nifty Fifty. Having retested the support from mid-May when the election results became public, the Indian economy continues to count on its own investment growth and its own consumers for good news. A young population produces its own optimism. The generational overhang of baby boomers may be the US, Japan and Europe's most intractible problem.