Euro Quiet in Monday Trade

Still as the week progresses, the risks may be to the euro’s side especially with Tuesday’s expected rate hike to 4% by the FOMC which will take the dollar to a 200 basis point premium to the European currency. Later on in the week Non-Farm Payrolls are expected to rebound  to a 120K gain from prior month’s Katrina caused decline of -35K. Both of these events should be strongly beneficial for dollar bulls if they report as expected  because they will confirm the underlying strength of the US economy and will allow the Fed to maintain its restrictive monetary bias for far longer than the market anticipates.

 

One  economic release that could possibly squelch some of the dollar longs’ momentum is today’s Personal Income data report. Last month the release showed a surprising decline of -0.10% and as some analysts so acutely pointed out, even Friday’s consensus beating GDP estimate of 3.8% revealed that disposable income actually fell at - 0.9% annual rate in Q3 of 2005. If Personal Income again disappoints this month, the market may discount last week’s positive results altogether as nothing more than pump priming by the  US government which poured close $100 Billion in hurricane relief in the last two months. In order for the US economic growth thesis to hold, US Personal Income must show some meaningful gains. As we noted in our weekly commentary, if after the rate hike and the strong NFP’ s the dollar still can’t break the 1.2000 level, “the woes of dollar bull may be just beginning.”