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800-528-0559(March 6, 2002) CURRENCIES: The U.S. Dollar bottomed in mid-1992, with a secondary higher low in first quarter 1995. This is a long uptrend that is overdue a significant intermediate correction. The June U.S. Dollar Index topped out January 28. It made a lower high February 26. The wide-range, heavy volume, weak close below 119 put in a significant intermediate and perhaps major top. It would take a strong close by the June U.S. Dollar Index above 120.65 to turn the intermediate trend up. Such is highly unlikely. So, we are favoring the long side of the Euro, and particularly the Swiss Franc, British Pound, and Australian Dollar/New Zealand Dollar. Remember, the U.S. is requiring over $1 billion a day now from abroad to finance its trade deficit. This amount is expected to double to $2 billion a day sometime next year. The U.S. trade deficit in 2003 could hit 6% of GDP. Net, the U.S. owes foreign investors about $2 trillion. This huge amount is compounding. Is the U.S. Dollar 25% over-valued? Globally, investors still see the U.S. economy outperforming the Eurozone and the yen domain. This has supported the U.S. buck. But, we are in the turning point time frame for the dollar to break. The February 26 high was one day off my predicted turning point top, too. The Euro, Swiss Franc, and British Pound all turned up on March 5-6 when the U.S. Dollar Index turned decisively down. The Australian Dollar bottomed against the U.S. buck on January 30, almost the equal opposite of when the U.S. Dollar Index topped. Even the lowly Canadian Dollar shows signs of bottoming. A couple of strong closes by the March Canadian Dollar above .63 will confirm the intermediate low for the northern peso. The Japanese Yen bottomed February 27. The yen bottoming in the face of the Bank of Japan feeling the political pressure to further expand the money supply is bullish. The Japanese yen is rallying now with the Japanese repatriating to yen before the end of March. Are we going to see the yen again slump in second quarter? Frankly, there is plenty of liquidity in Japan. Japan's banking system is just burdened with bad loans, and so it cannot fully utilize the liquidity to expand its economy until these non-performing loans are resolved..
RECOMMENDATION--Futures investors profitably long June Swiss Franc on scale-down weakness use .579 open protective stops, adding to long positions on a strong close above .595. Target: .66. Futures investors profitably long June British Pound on scale-down weakness use 1.3988 open protective stops, adding to long positions on a strong close above 1.425. Target: 1.48-1.52. Futures investors profitably short June U.S. Dollar Index on scale-up strength use 120.66 open protective stops. Target: 112.0 minimum. Futures investors may purchase June Canadian Dollar on scale-down weakness and/or a strong close above .63 with .6188 open protective stops. Target: .65 minimum.
R.E. McMaster, Jr.
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