Did Dubai World Credit Default Delay Euro’s Run to Higher Levels?

Original Article from Seeking Alpha Dollar Currencies

On the Wednesday prior to Thanksgiving the Euro was marching ever higher versus the dollar when risk appetite was suddenly reversed by awareness of the Dubai problems. This caused a hasty retreat down to the support at 1.4850. The problems with Dubai World remain unsolved, and it has been revealed that the tentacles are far reaching. For example, Dubai World owns a 6% stake in MGM casinos, as well as 50% interest in an 8B$ project in Las Vegas, called the City Center Project. Yes, Britain may have the biggest share of the Dubai loans, but the US, German and French bankers have all been sponsors of Dubai’s ambitious plans. Since currency values are relative and everyone seems to be in the same pickle, we are then back to square one, and the Euro has again appreciated above the 1.51 level.

As we enter the final month of the year, we are going to begin to hear summaries of the big events and stories of 2009. Near the forefront will be the recovery of global equities. The recovery may be lagging on main street but Wall Street is booming. If you are a fund manager, and the market has just had a 60% upside move since March, the last thing you want to reveal to your investors is idle cash at the end of the year. In a bull market idle cash is a curse for the fund manager, and this idle cash is likely to ignore

the problems of Dubai, and main street and propel the markets higher. Just as markets go down too low, they also go too far the other way. What reason do we have to believe the inverse correlation between equities and the dollar will not continue?

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