The story of the current account deficit allowed traders and analysts to justify any currency prices. Sentiment got overly bearish on the dollar.
The story of 2005 was the dollar defying an overwhelmingly bearish consensus. The dollar has little to fear from a slowdown in U.S. consumption growth as this will eventually lead to an improved external trade position.
The strong US employment report serves as reminder that upside risks to US short rates linger.
Dollars provided by the deficit are being soaked up by capital flows. It's important to consider both sides of the coin.
The market has got itself into a far-too-dovish spot given the tone of the Fed-speak. There is potential for rate expectations to rebuild and that should support the dollar.
It was almost a reflex reaction. If you have a good friend who can use your help, you just do it. It's all about coming to the aid of someone you care about deeply.
There was an observable extreme in market sentiment.
Any significant weakness in the housing data would be dollar negative suggestive of a slowing economy, thus reducing the amount of monetary tightening required from the Fed.
It's wrong to assume that the dollar will start to fall as the Fed stops raising rates. What we could see is a transition to a structural support for the dollar as the trade position improves.
Markets are sensing the Fed needs to do more even though US economic data have become more mixed.
