DeutscheMark

Fundamentals By Q1 '98, we could see the German economy growing in contrast with a slowing US economy With an asset market meltdown in the USA and a weak Yen, the Mark may strengthen by default.

If Japan is not doing well and the US Asset Markets are in turmoil, German may (just may) become a favoured investment destination by default. Also, if Europe after the Euro is going to emerge as a bigger debt market than the USA, could we see some very long term strategic investments in the Mark in 1998? CHECK There are some signs that after a period of 1-2 years of a weak currency, export led growth is picking up in Germany. At the same time the scare about "Import induced Inflation" is still open to debate German interest rates may (just may) rise in 1998. And if interest rates rise, is there a possibility of the real yield gap shifting in favour of the Mark vis-a-vis both the Dollar and the Yen? It could, assuming a still benign inflation scenario in Germany.

Technicals
There is little doubt that the US Dollar in early 1995 embarked on a long-term bull run against the Deutschemark. However, the move above 1.75 this year, which extended to 1.8910 has come too fast.

We are now probably witnessing profit-taking by strategic long Dollar positions.

This process could extend upto a level of 1.74-1.76 in the next 6 months.In case sentiment turns bad, we could even see levels between 1.65-1.70

Such retracement would be viewed as the first proper correction of the upmove from 1.38 levels of 1995 and would setup the stage for the next big upmove in USD towards 2.00