There is no such thing, of course, as the German mark anymore, but intutively we still like to look at its chart (which is still being calculated basis the fixed conversion rate to the Euro set in Dec. 1999) more than we do the Euro itself. This is because most Euro chart data is fudged pre-1999.

As some likely remember, our own earlier expectation had been that the 1.04-1.08 region on the Euro would have offered more substantive resistance than turned out to be the case. The March-May vault up to 1.16 has left us scratching our heads a bit, and looking back at this old DM chart for guidance.

One thing is quite clear at present: The European currencies on a straight sentiment basis, are very overbought. Market Vane's Bullish Consensus reading for the Euro as of Friday stood at the very lofty 86. If our count on the DM chart depicted above is correct, there is also some possibility that the Euro (DM) may be due to finish a wave 3 at this juncture. Could a 4th wave dollar rally soon emerge before yet further dollar declines longer term?

Some subscribers have asked how we can possibly even consider such a path for the dollar given our even stronger belief that the current equity rally is about to peter out and reverse. Under this line of questioning, most people believe that equity weakness and dollar weakness almost always go hand in hand.

Unfortunately, we cannot provide a clean macro roadmap in answer to this question. All we can say is that the market's anticipation that the Fed will cut rates yet again has actually sent the dollar lower and equities higher recently. The end result is that people perceive that the stock market has gone up a great deal since March 12th (hopefully in the Fed's mind to create a self-fulfilling rebound in consumer confidence), but in foreign exchange-adjusted terms, this is, of course, something of a false domestic illusion.

At present, we await something to emerge that will unwind this new weak dollar-strong equity "relationship." Perhaps it will be a financial accident of some sort in Europe. Perhaps the dollar bounces for some other reason -- including the potential of drought-induced commodity-push inflation that slows down the Fed's easing proclivities. Guessing at the causal factors here is currently difficult.

But for now, we would not be chasing Euro strength, at least in the short term, and we continue to anticipate an elusive but increasingly imminent equity top.

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Sand Spring Advisors provides information and analysis from sources and using methods it believes reliable, but cannot accept responsibility for any trading losses that may be incurred as a result of our analysis. The opinions expressed are not intended as specific investment advice, and simply represent our personal views offered here under our right of free speech. Sand Spring Advisors is a NFA registered CTA/CPO, but is not a Registered Investment Advisor. We do not directly trade any client funds. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, and should always trade at a position size level well within their financial condition. Principals of Sand Spring Advisors may carry positions in securities or futures discussed, but as a matter of policy will always so disclose this if it is the case, and will specifically not trade in any described security or futures for a period 5 business days prior to or subsequent to a commentary being released on a given security or futures.