The reflation trade is alive and well in the wake of the stunning drop in US jobless claims and the ECB’s foray into quantitative ease (or “enhanced liquidity measures” or whatever Trichet prefers to call it).
EUR/USD has extended its gains to 1.3470, AUD has probed above 0.76, Oil is up 2 bucks to $58.25 and US yields are on the rise. Only USD/JPY is holding out, slipping back to 99.05 after triggering stops above 99.60/65 earlier.
The structural needs for dollars are lessening as the global economy slows the deleveraging process that unfolded in the second half of 2008. This should keep the greenback on the defensive near-term though it is not necessarily a sign of US economic weakness. Like the ta=rade deficit, a weak dollar is often a sign of US strength, strangely enough. re
