US Dollar - 1.50 Broken, Now What?

It finally happened. After three failed attempts over the past several months the Euro vs US Dollar broke the 1.5000 barrier and barreled to 1.5200 as the case for decoupling became clearer by the day. US economic data continued to disappoint sinking to a six year low while Euro Zone data produced mainly upside surprises. As we’ve said many times before, much to the consternation of euro bears the Euro Zone economy is not crumbling despite disadvantageous exchange rates, high energy costs and a restrictive monetary policy. The greenback on the other hand was further pummeled by Chairman Bernanke’s dour testimony which suggested that the Fed will continue to lower rates, irrespective of the massive inflationary risks building up within the US economy. The chairman repeatedly stressed the need for “balance” essentially telegraphing to the markets that the Fed is far more concerned with stimulating growth rather than controlling price pressures. The net effect of Dr. Bernanke’s rhetoric was more dollar liquidation as traders now fully expect a 50bp cut in March which would widen the spread between the dollar and the euro to 150bp in euro’s favour.