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(March 20, 2002) CURRENCIES: The June U.S. Dollar index has fallen to levels not seen since the early days of 2002. The June Swiss franc has rallied to its highest levels of this year. The euro is back to mid-January 2002 highs. Present consolidation by the June U.S. Dollar index is bearish. A weak close below 117 should accelerate the downtrend. The June U.S. Dollar index now has strong resistance between 119 120. It should be no surprise fundamentally that the U.S. Dollar is weakening, with the Fed having flooded the U.S. economy with money at an unprecedented rate over the past year. Plus, the Bush budget includes the biggest defense spending increase since the Reagan era. U.S. debt has continued to expand as well. Foreigners are growing weary of propping up the U.S. Dollar. The U.S. Dollar is increasingly less seen as a safe haven. Safe haven status is

starting to favor gold and the euro. The decline in bonds has hurt the U.S. Dollar. If stocks decline, too, that will be a double whammy for the U.S. buck. And the truth is the Fed has no where to go with regard to either lowering U.S. interest rates more or increasing the money supply. The U.S. Dollar is 20%-25% overvalued versus the euro. Real interest rate differentials are negative for the first time since 1994 for the U.S. Dollar. And the U.S. current account deficit will exceed 5% of GDP this year. The Swiss Franc is the strongest of the European currencies, stronger than the euro. The British Pound is neutral and surprisingly the weak sister among these euro associated currencies. The Japanese Yen could collapse to new lows, possibly even before March 31. Japan has been plagued for 2-1/2 years with deflation, a teetering banking system, exploding money supply, interest rates at zero (negative in real terms), a 12-year bear market in stocks, a slipping credit rating, and no real hope on the horizon. Japan's economy had three straight negative quarters with the economy down 4.5%. Only government manipulation supported the Nikkei Dow moving higher. We want to let this market prove itself after March 31 to confirm that it is truly on bottom. Commodity currencies have strengthened Australian Dollar, New Zealand Dollar, and to a lesser extent, the Canadian Dollar. Is this strength in commodity currencies a reflection of a shift to value, to real assets over debt, paper, and stocks?

RECOMMENDATION--Futures investors profitably long June Swiss Franc on scale-down weakness use 0.593 open protective stops. Target: 0.66. Futures investors profitably long June British Pound on scale-down weakness use 1.3988 open protective stops. Target: 1.48- 1.52. Futures investors profitably short June U.S. Dollar index on scale-up strength use 119.62 and 119.11 open protective stops. Target: 112.0 minimum. Futures investors profitably long June Canadian Dollar on scale-down weakness and/or on the strong close above 0.63 use 0.6247 open protective stops. Target: 0.64 - 0.65 minimum. Futures investors may purchase June Australian Dollar, preferably on scale-down weakness, with 0.5089 and 0.5147 open protective stops. Target: 0.54-0.56.

R.E. McMaster, Jr.
www.TheReaper.com

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