Charting Economic Surprises in the Majors - February 2007

Dollar bears were out in full force in February as the surprisingly strong growth of 3.5% released in January was slashed to 2.2% while plunging durable goods orders and weakening sentiment eliminated the term “goldilocks economy” from the mouths of analysts. The dollar also took a hit as crude oil pushed above $60/bbl amidst mounting tensions with Iran and freezing, snowy weather conditions throughout the US. Furthermore, the sudden 8.8% drop of China’s benchmark equity index sent global financial markets reeling, making traders acutely aware of the high level of mis-priced risk globally and subsequently unleashing a massive unwinding of carry trades. The question going forward is: has the market’s mentality finally shifted from the optimistic ho-hum days of non-stop US expansion? If the fundamentals start to reflect more bearish conditions, the Federal Reserve may stop talking up the potential of tighter monetary policy and start leaning towards a more dovish bias and traders could take the greenback even lower.

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