The dollar back on track……..

The dollar has been in the midst of a comeback after bearish sentiment in the previous few weeks failed to allow the greenback to break out of its recent ranges. This bounce back to the high end of the range has cooled expectations from the hedge fund community that the dollar was set to weaken further due to structural weaknesses in the U.S. economy. With crude trading at the high end of its range and calls for it to edge higher in coming weeks (Goldman, Merrill, and JPMorgan all raised their expectations for prices), Asian currencies will continue to be pressured, as well as the Euro. Asia and Europe being large importers of crude will suffer from the inflation as well as growth effects of the higher crude costs. These effects will clearly benefit the Dollar as the Fed will continue to raise rates (to offset the inflation effects of higher crude) and the U.S. economy should slow less then in counterparts in Asia and Europe.