Just Like the Old Days, Greenspan Sends the Dollar Tumbling (page 1 of 2)

US Dollar - It is all about the details these days. Even though the headline durable goods and new home sales numbers printed much stronger than expected, the details of both reports suggest weakness in the US economy and not strength. Excluding transportation orders, demand for big ticket items increased by only 0.1 percent as nearly every single ex-transportation component saw declines in the month of September.

The biggest drop was in semiconductors, which is basically the technology sector. This is right in line with what we predicted yesterday, which is that even though consumer demand for small retail goods is still strong, Americans' appetite for big ticket items such as electronics and appliances are not. As for new home sales, even though the number of units sold is increasing, house prices dropped by the largest amount in 36 years. With oil prices back above $60 a barrel and the paper wealth of homeowners dwindling, the future of US consumer spending is still at risk.

Going into the third quarter GDP release tomorrow, a weak number should have a far more lasting impact on the markets than a strong one. GDP is a backward looking indicator and not a significant market mover, but should the numbers disappoint, it would mean that not only is growth expected to be weak in the months to come, but it was also weak in the past few months. Strong numbers on the other hand will most likely be shrugged off as traders assess the risks facing the economy in the months ahead.

Even the labor market had its share of problems today. Help wanted ads held at a 45 year low in the month of September, after having been revised downwards the previous month. With a number of indicators at multi decade points, it is no surprise that the US dollar has completely collapsed today. Although we could see a bounce after the day's sharp moves, any rallies in the US dollar will probably be short-lived.

Euro and Swiss Franc - Even though he has left office for months now, when former Fed Chairman Greenspan speaks, the market still listens. At a conference sponsored by the Commercial Finance Association, Greenspan said that "We're beginning to see some move from the dollar to the Euro, both from the private sector ... also from monetary authorities and central banks."

This turned out to be the real driver of dollar weakness as opposed to the morning's economic data. In fact, all of the data combined this morning only yielded a 25 pip rally in the EUR/USD. When Greenspan made his comment, the EUR/USD shot up another 30 points in a matter of 35 minutes. It appears that Greenspan's comments provided the extra push that sent the US dollar over the edge.

The only piece of economic data released from the Eurozone worth noting today is the Germany November Gfk consumer confidence survey. The index rose from 8.9 to 9.2, which indicates that consumers are just as happy as businesses. A number of ECB officials were giving speeches today. There were no surprises and only confirmation that another rate hike can be pretty much be guaranteed.

ECB President Trichet continued to talk of the need to be vigilant on ensuring price stability while policy maker Bini-Smaghi added that central banks should be wary of ending the tightening cycle too soon. The central bank's message is crystal clear. The EUR/USD's rally is stalling at 1.2700, which is a very key resistance level. We may need a sharp disappointment in US GDP tomorrow to break past that.

Meanwhile the Swiss Franc is performing very strongly today against the US dollar, Euro and Japanese Yen thanks to a jump in the September UBS consumption indicator.