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To: Nadine Carroll who wrote (31343)	10/25/2000 7:43:43 PM
From: pater tenebrarum	Read Replies (4) \| Respond to of 436258

Nadine, i think what we're seeing in dollar/Euro is to some extent a replay of yen/dollar in the early '90's. the trend has become parabolic, which per experience makes it difficult to time it's stopping point. usually the terminal phase of such a move is characterized by an acceleration, and we seem well on our way to that. essentially, you have a big contingent of 'early' dollar shorts at work, who don't believe in the trend based on fundamentals...these shorts are now continually squeezed, as the trend continues to overshoot the fundamentals. that's in a nutshell what i think is happening here. note, at the Euro's inception, i was a noted skeptic and critic, on the idea that the Euro-zone wasn't an ideal common currency area. it still isn't, but two things have happened that have convinced me it's here to stay and will eventually strengthen and begin to take on the role as 'second reserve currency' of the world: A) the Euro-denominated capital market has grown by leaps and bounds. its size now dwarfs the sum of individual country capital markets that preceded it. and B) the Euro has forced various governments to begin to institute the next phase of reform, however slowly. it was recently argued that the Euro-zone is hampered by the lack of a single government and unified tax system. i'm not so sure anymore if i agree. firstly, the disparate nature of the economies of the zone requires decentralization to some extent, and secondly we have now governments beginning to compete against each other on taxes and regulations. since the common market allows companies to pick and choose their domicile freely, there is a lot of incentive for governments to pursue this course. well, that's good! lastly, it should be mentioned that the ECB, contrary to the barrage of criticism leveled at it, is very conservative in its policies and seems well-managed to me. i think it suffers mainly from a lack of public relations skills. the indignation at its reluctance to intervene in the market must be tempered by the acknowledgement that a CB that keeps out of the free market as much as possible is maybe not such a bad thing. what's more, intervention per experience works only when it is co-ordinated. with Somewheres insisting on his strong dollar come what may, such is apparently not possible on a continuous basis at the moment. i also think that no-one wants to be the one who initiates a flight from the dollar. it's not that the ECB didn't wield a big stick if it needed to...its dollar reserves are huge. the Euro is btw. used for what has become a large carry trade. US entities have borrowed some $350bn. in Euros over the past 12 months. eventually the flow of interest alone could tip the scales in favor of the Euro. as to how carry trades unwind, look at a chart of the Yen..specifically late '98: tfc-charts.w2d.com