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The euro, which made huge gains against the dollar in the wake of 2008's financial crisis, has come plummeting back to earth amid fears that the Greek credit crisis would spread and undermine the European Union (EU). The euro's decline has meant a sharp rebound for the dollar, which according to respected market researcher Bespoke Investment Group LLC, is now "extremely overbought."
The euro has plunged some 21% versus the dollar from its all-time high back in 2008, Bespoke says. And while it is still above its historical average of $1.183, it is currently less than 2% above its 2008 low.
Meanwhile, the U.S. Dollar Index has rallied over 14% since its short-term lows in November, and it is up 3.5% this week alone.
"As a result of this recent spike, the Dollar index is not just trading at overbought levels, it's at extremely overbought levels," said Bespoke.
The concern among traders is that the Greek credit crisis will spread, but so far no data exists to support that theory. In fact, it's quite the opposite.
The JPMorgan Chase & Co. (NYSE: JPM) Global Manufacturing PMI rose to 56.7 in March. That's up from 55.4 in February and the highest level since May 2004. The headline purchasing manager's index (PMI) has remained above the neutral 50.0 mark for nine consecutive months.
"The headline PMI rose to a 70-month high in March. Growth of production and new orders regained most of the momentum lost in February, while global trade volumes rose at a survey record pace," said David Hensley, Director of Global Economics Coordination at JPMorgan.
U.K. factory output is growing at its fastest rate in 16 years. Factories in the Eurozone are plugging along at a four-year high, due to a record jump in Germany and big gains in France, Italy, the Netherlands and Austria. Even Spain and Ireland are growing their manufacturing sectors again, the survey showed.
Growth in global new export orders was the sharpest since data were first compiled in January 1998.
In the United States, the Institute of Supply Management (ISM) revealed that factory output expanded in March for the eighth consecutive month, accelerating at its fastest pace since July 2004.
ISM's closely watched PMI climbed to 59.6 in March from 56.5 in February, beating economists' predictions. And a string of government reports show that the American consumer is making more money and spending again, providing impetus for a sustained economic recovery.
Personal income jumped 0.3%, or $32.3 billion, in April following a 0.1% rise the month before. The Commerce Department said individual spending rose 0.6%, or $36 billion, last month, the sixth consecutive month spending has increased.
"While nobody knows the ultimate extent of the spread of contagion from Greece, as of now it hasn't seemed to have had much of an impact in economic activity in the U.S., around the world, or even within Europe," Bespoke noted.
Furthermore, just 2.2% of EU gross domestic product (GDP) comes from countries with non-investment grade ratings – Greece and Latvia -, and only 4.5% of the region's GDP is from countries with non A rated debt, according to Bespoke.
"If, and this is a big if, there is any credibility remaining in sovereign credit ratings, these figures would indicate that the troubles in the EU's weaker countries shouldn't pull down the entire region," said the market researcher.
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