By John Ross Crooks III, Currency Analyst
www.worldcurrencywatch.com

Inflation is back...but this time it’s a bit different.

I’m not talking about the inflation of prices. I’m talking about the inflation of lungs.

It’s almost as if every morning there’s some new stimulus bill, or some alteration to one, or some plan to fix banks, or something along those lines. And with each morning, we hold our breath...some more.

You see, the stock market hasn’t cared a whole lot what’s been told to us, what investors and others are supposed to expect going forward. Yes, we give President Obama and Benny B their opportunities to speak (whether that means three or four times a week.)

But after that, we puff up our cheeks real big and plug our noses like a 5-year old learning how to swim. And we just hope. Hope that this time the markets don’t dive. Hope that this time the pundits will like what they hear. Hope that this time the economy gets back on the tracks and starts chugging along, whatever the pace.

I’m Glazing Over Any Article with These Buzz Words…

By now, with all this hoping, most of us could probably boast the lung-capacity of a Navy Seal...or rather, a plain old seal. As we buy our time with ‘stress tests’ and the like, I’ve practically stopped reading any of the headlines with any of the typical buzz words. Words like...

• Obama
• Stimulus
• Nationalization
• Financial System
• Bernanke
• Mortgages
• Aid
• Government
• Automakers

And most of those headlines with a dollar-figure above US$700 billion...yeah I pretty much glaze over those headlines too. In fact, the Wall Street Journal online now has an entire webpage devoted to stories – new and old – that pertain to stimulus. Ha.Ugh.

I suppose if I wanted to know what all this meant, without spending hours at WSJ.com, I could just tune in to CNBC today. They’re bound to discuss the new Federal Budget Deficit estimate. I could tell you it’s about US$1.75 trillion, but then what would you turn on CNBC for?

Anyway, turning to the important stuff, the U.S. dollar is rolling over a bit this morning. Thus far it’s been a stronger week for the U.S. dollar. But it remains below key resistance going back to last week and then back to its November high.

It may make sense to be cautious on the U.S. dollar at this level. In other words, stay open to the possibility of a risk-taking rally – a stock market rally from its recent test of November’s low might be in the cards. And I say that because sentiment in stocks is very much one-sided right now. Almost everyone is bearish.

A risk-taking rally, as I mentioned, could quickly throw a towel over the hot dollar. But first we’re going to have to somehow cruise through tomorrow’s economic data. The highlight will be U.S. GDP. The expectations are already low. Considering how fragile this market is, it might be good to hold your breath.

What Currency to Short As Risk Takers Make a Comeback 

Note: If you’re looking for a way to play it, the Japanese yen may make a good target. It’s already starting to weaken on Japan’s deteriorating economy while losing some of its safe-haven appeal. And if the risk-taking environment changes, that may add even more fuel to this trade.

Of course, I’m sure Barack will step up to the mic after the actual GDP numbers are released. He’ll tell us not to worry, his new plan has everything covered. We’ll probably believe him, but will it make us feel good inside?