The Dollar received a much-needed boost today in the wake of two revelations. First, the release of trade data indicated the US trade deficit actually declined in June, to $55 Billion. While this is still sizable, it is certainly a cause for celebration. As paranoia over outsourcing and the Chinese economic boom continue to reverberate through the media, many pundits have predicted the trade and current account deficits will widen significantly. Accordingly, a decline in the trade deficit was viewed by forex traders as nothing short of miraculous.

In addition, the White House announced plans to significantly reduce the budget deficit. The proposal calls for a steady reduction over the next 5 years, to reach 1% of GDP by 2010. It seems the stars have finally aligned for the USD. If US interest rates continue their climb and the American economy retains its robustness, the USD should continue to rise.

"All the fundamentals are in place for the dollar rally to continue."  While the last few days have seen unwinds of dollar longs/euro shorts, the move has largely been viewed as corrective and necessary before a new wave of dollar buying could be seen.

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