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international investment trends

International Investments Currency Flash

international investment trends

Gary Scott

Each dawn I step onto the balcony at El Meson and can see a different view. To the right is Mount Imbabura. Left I see Mount Cotacachi and to the southwest these foot hills that sparkle in the morning light.

I hope you'll join us on our Import Export Expedition for April 23-30 and share these views. Learn ways to have your own international business.

This and being able to see different views may be especially urgent now because of the currency flash below!

Thomas Fischer of Jyske Bank has just warned me that the US dollar has run into problems. He says:

"Time will show just how serious the trouble is, but we fear that sentiment may suddenly change over the next few days and weeks and pull the US dollars towards levels that we have not seen for a long time."

Last week, a historically high US current-account deficit of 225 billion dollars was reported for the fourth quarter alone. This equals an amazing 7% of America's GDP! This took the aggregate current-account deficit for 2005 up from 6.2% of GDP to 6.5% of GDP. Moreover, the deficit on the balance of goods and services for January was historically high, at $68.5 billion which was not covered by the capital inflow of only $66 billion.

Foreign investors continue to finance these huge US imbalances, but below the apparently quiet surface there are fears in financial markets that the price of this financing could rise much higher. This could mean a devaluation of the dollar, which would make it cheaper to invest in the US. The alternative would be significantly higher US interest rates, which would render US investments more attractive.

Recent economic indicators released have put focus on the Achilles heel of the US dollar - these huge US imbalances. As yet it is impossible to say how serious this change may be. It's certainly too early to say how long it will last.

However, a look at Jyske's technical analysis models gives an idea of what could happen.

For the first time in a very long time, their technical models are beginning to indicate a downwards shift in US dollar sentiment.

Last week the EUR/USD rate closed above 120.65. This is a signal in the short, medium and long-term models to BUY EUR against USD.

This is the first newly established uptrend of the EUR/USD rate in a long time. The 50-day moving average is about to break through the 200-day moving average, which creates a so-called golden cross for the EUR/USD rate. This is another signal from technical analysis that points towards a change of direction for the EUR/USD rate.

The current level of the EUR/USD rate is precarious. The rate is between the two peaks in the range between 116.40 and 123.20. The rate is mesmerized by a psychologically important top at 123.00 - 123.20.

So there are two fronts struggling for the upper hand of the EUR/USD rate. One holds that nothing has changed, so long as 123 stands firm. Others maintain that focus has already changed, and that passing 123 is a question of time.

Investors should be prepared to learn at all times. If the EUR/USD passes below 116 dollars per euro, the dollar could rise all the way to 110 in the short term. But, if as feared 123 is strongly breached, the next stop for the rate may be 126 or perhaps even 128 dollars per euro. On the other hand, if 123 remains firm, Jyske expects to revert to range trading between 116.40 and 123.00.

In short, the scene is set for some explosive days in the currency markets. I recommend that you read Jyske's daily currency updates. A lot may happen in the next week. Contacts Thomas Fischer at


This may be a perfect time for the dollar short MultiCurrency sandwich or the Emerging Asian portfolio. DETAILS

international investment trends
March 2006
international investment trends


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