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* Dollar rally continues... * Be careful what you wish for! * Prime loans now in trouble... * Norges Bank to keep rates unchanged... ** Trade Deficit Narrows... Good day... And a Wonderful Wednesday to you! Tuesday saw more volatility in the currencies as the dollar went back in forth, but well within a trading range. The euro has melted down to the 1.49 area, where it seems to have found some breathing room. The Trade Deficit for June shrunk, but the Budget Deficit widened... Again, the fundamentals in the U.S. continue to point to recession. All this and more in today's Pfennig, so grab a cup o'java, a chair, and let's go! OK... Front and center this morning, I want to talk about the Trade Deficit, which in June showed a narrowing from $59.8 Billion to $56.8 Billion, which looks good, right? Well... As I told you in yesterday's Pfennig, you have to be careful what you wish for. This drop in the Trade Deficit pushed the dollar higher yesterday morning, and got me thinking... (I know, that could be dangerous, but stay with me here...) A stronger dollar will not play well, share toys, and keep its hands to itself, with exports... And exports have been something short of amazing with the dollar being weak. In fact, exports have accounted for the largest contribution to GDP in the past 5 quarters! (with U.S. Consumer spending drying up, this is possible!) Add to that, everyone getting goose bumps regarding a global slowdown... If the world slows down, like the dollar bulls are claiming they will, thus propping up the dollar, then U.S. exports will slow even more!...

* Budget gap to approach $500 billion... * Deficits lead to record borrowing by the US... * Commodity currencies take divergent paths... * India raises rates... ** Budget gap to approach $500 billion... Good day... The currency markets were mostly flat yesterday with all of the majors stuck in fairly tight trading ranges. With no economic data released, the trading desks were mostly dead. The story which dominated the screens yesterday was the announcement of a record $490 billion US budget gap. The Bush administration said the US budget deficit will widen to a record next year, leaving a deep budget hole. The bigger shortfall reflects dwindling tax receipts because of the US economic slowdown, the cost of the $168 billion economic stimulus package and spending on the wars in Iraq and Afghanistan. The shortfall reflects a deterioration of the budget over the past seven years. Bush inherited a budget surplus of $128 billion when he took office in 2001. The budget worsened almost immediately, because of recession, the Sept 11 attacks, the beginning of the war in Afghanistan and, later, the war in Iraq....

* Some healing in the currencies... * U of Mich. Confidence falls... * Unloading Treasuries? * Turning the tables in N.Z.?...

* The euro nears an all-time high! * Deficits DO matter! * Retail Sales not so sweet! * Oil hits $114!...