The Euro is headed down ( dollar up)

lets take a look at this current chart that basically represents the health of the banks over the majority of country's that make up the Euro Zone

www.stoxx.com...

you can note that the index breaks down pretty good (or bad) since the new year.

In the U.S the banking index usually forces the fed's hand and i think the same thing will occur in Euro Zone. although the European Central Bank is anticipated to be less aggressive. This is because the Fed fund's rate is 4% (where as the u.s funds started cutting from over 5%.)

The future path of rates in the ECB (and the euro) has now been "solidified " based on recent statement out of the ECB and a survey

The ECB's survey of euro area bank lending showed an abrupt tightening in credit standards in January, when the report's release was brought forward by a month due to turmoil in financing.

ok what else?

A net 41 percent of banks have made credit conditions more difficult to business, about a third more than in the third quarter of 2007. A net 21 percent tightened up on home loans, nearly double the level in October.
"The sharp tightening reflects the deterioration of financial market conditions since the start of the financial turmoil last summer and a worsening of banks' situation," the ECB wrote in the report.

ok so picture a see saw with the Euro high up and the dollar way down, as investors begin to gain more confidence on the timing and certainty of rate cuts, the Euro will move lower which in turn will lift the dollar. (Euro is 58% of the total weight in the dollar index.

So europeans wanting to go on shopping spree's in the United states may want to act in the next month, or they may not be saving so much money, i don't think the two currency's will become equal, but the euro could fall to 1.30 per dollar and the dollar index will probably rise above 80.

keep in mind this is part of a bigger illusion where all currency's are continually being devalued against gold (just at differing rates) , just the picture we usually focus on is in is the strength of a currency relative to other fiat's.

there does exist however the possibibility that a deepening of the credit crisis will take down asset values in commodity's including gold, when/if this happens determines alot on an appreciating yen (unwind of carry trade) political stimulus responses, as well as large write downs in banks and bond value's and defaults (note in the short term Euro gold should get a spike) but the possibility does exist that currency's and the dollar in general could not only increase relative to the euro, but also should commidity's get taken down, esp $ (Euro also) could increase in over-all value, in a deflationary enviornment. Also to note is that the yen looks likely to increase either way which would pressure stocks to sell-off world wide.


[edit on 8-2-2008 by cpdaman]

any dollar positive moves were only temporary. I haven't been very vocal lately on this topic and I haven't seen any of the regulars of this type of discussion post this yet..

Euro Rises To New High Above $1.5100 After Bernanke

The dollar has and is dying.. sure you get some oxygen occassionally and the dollar has good run, but imo it's only because of the short term traders making moves, overall the trend is and seems to be continuing on a downwards path.