2nd June 2011

UPDATE
Technical
Fundamental
The Dollar is unable to
strengthen
in association with

Authorised and regulated

Disclaimer
by the FSA
 The Dollar is unable to strengthen

Eur o - US Dollar
High 1.6036
MONTHLY CHART
1.60
1.4281
1.55
We last wrote about the Euro on 14th
in association with 1.50
April when the wedge had just been
1.3812 Prior High from Sept 1995
1.45
completed….there has been a pause
1.40
since, within which there has been a
Hi gh 1.3668 1.35
retest of the breakout levels….
1.30

1.25

1.20

Support
UPDATE 1.1875
1.15

1.10

Technical 1.05

Fundamental 1.00

0.95

0.90

0.85

0.80

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Eur o - US Dollar 1.510

DAILY CHART
1.4941 High 1.505
1.500
1.495
1.490 The two critical levels are the
1.485
1.480 upper diagonal of the wedge and
1.475
1.470
1.465
the Horizontal from the Prior High
1.460
1.455
at 1.4281.
1.450
Diagonal from 2006 1.445
1.440
1.435 They were twice tested, and
1.430
1.425 found to be solid.
1.4281 High 1.420
1.415
1.410
1.405
1.400
There is no clear short-term
1.4052 Low
1.395
1.390
reversal pattern in place yet, but
1.385
1.380
the medium and long term
1.375
1.370
pressures for a lower Dollar and
1.365
1.360 higher Euro look to be firmly in
1.355
1.350 place.
1.345
1.340 Our Euro optimism looks to be
1.335
1.330 well founded.
31 7 14 21 28 7 14 21 28 4 11 18 25 2 9 16 23 30 6 13
Disclaimer February March Apr il May June
 The Dollar is unable to strengthen

FUNDAMENTALS:
in association with The Dollar’s recent rally appears over, or is it?

Until the start of May the Dollar had been under relentless selling pressure that drove
it to within a whisker of 1.50 against the Euro. Then suddenly it corrected, very
vigorously. The catalyst was a mix of events, but the Portuguese debt crisis was at
UPDATE the centre of the drama weakening the Euro.
Technical
Fundamental After a period of uncertainty the Portuguese government finally sought financial help
from the EU/EZ/IMF and this seemed to bring the Euro zone’s debt crisis into sharp
relief with Spain seen as the next victim.

Additionally, speculation had built that the ECB would follow up April’s rate hike with
a move in May helped the Euro rally through April. But when the ECB left policy
unchanged and Trichet failed to offer guidance on the next policy move, the Euro lost
its support and the Dollar staged a lightning rally.

Switching to the Dollar, the US released a non-farm payroll report at the start of May
that was better than expected and traders took this as a sign that the Labour market
was at last repairing the damage caused during the Financial/crisis recession.

Moreover, the Dollar was back in favour as a safe-haven trade. The Chinese were
concerned about controlling domestic inflation, Japan was still in the middle of her
natural/nuclear disaster and the Sovereign debt in Europe crisis raged on. So
questions were being asked about the sustainability of the global recovery, especially
as oil prices had recently hit $115.00 and threatened to go higher.
 The Dollar is unable to strengthen

FUNDAMENTALS: CONTINUED
in association with But over the last few days the Dollar’s rally has run out of steam. What has changed?

The Euro zone Sovereign debt crisis if anything has deepened as Greece is once again in
the spot light for all the wrong reasons: more financial assistance is required and the Euro
zone authorities are working to arrange assistance.

UPDATE But traders wonder if that is the answer. Greek debt has been downgraded to junk, and
Technical traders doubt that country as a nation has the will to see through the restructuring
Fundamental needed. A debt rescheduling is seen as a way out, but the Greek PM has said no, the
markets now wonder if Greece will ultimately default or leave the Euro zone.

While all of these options are apparently not on the table, the Greek economy doesn’t
seem able to cope with the prescribed medicine.

However the Euro doesn’t seem undermined by this as it has rallied over recent days, but
in reality recent price movements in Dollar/Euro aren’t Euro zone driven, they derive now
from the US.

The US housing market seems to be in a double dip recession as house prices have
fallen back, erasing gains made since the depth of the recession. Other data releases
over recent week’s have turn weak and that is despite the still very easy fiscal and
monetary policy.

Worryingly the Feds QE2 program ends at the end of this month. What then for US
growth?

So the Dollar is again under selling pressure because the US economy is again looking
weak, only this week the PMI manufacturing survey unexpectedly weakened.
 The Dollar is unable to strengthen

FUNDAMENTALS: CONTINUED
in association with But that isn’t all that weighs on the Dollar. The Administration and Congress are still at
loggerheads over the Government debt ceiling. The House Republicans refuse to vote
through a debt ceiling extension, as they want to use it as a bargaining chip in
negotiations with the White house over reducing the budget deficit. If agreement can
not be reached the federal government will be forced to shut down.

UPDATE In short, the US economy is again showing weakness.

Technical
Fundamental Politicians cannot agree on how to tackle the Country’s growing debt mountain.

The Fed’s QE2 policy is near closure, and despite all of this, some policy makers at the
Federal reserve are worried about inflation, even though the CPI and PPI readings are
still mainly benign.

All is not well with the US economy and as the World’s largest economy, the
woes of the US currently eclipse those of the Euro zone and are set to drive the
Dollar lower.
 in association with

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Fundamental
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