Sunday, December 3, 2006

Watch the Dollar This Week

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This chart does not look good. There is technical support at roughly 81.5 and 81. We'll have to see how it holds.

There are a lot of reasons for this. But, the main reason is the US economy is slowing.

The Commerce Department dealt the first blow against the dollar when it reported that construction activity in October dropped 1 percent, the largest amount since the recession in 2001. Home building fell for a record seventh consecutive month.

The Institute for Supply Management followed with an equally bleak report showing that the U.S. manufacturing sector contracted in November for the first time since April 2003.

U.S. economic data are being watched closely for pointers on the Federal Reserve's interest rate course. Higher rates, a weapon against inflation, tend to strengthen a currency by making investments in it more attractive.

The employment report on Friday could make this very interesting.