The dollar has eased back slightly after last week's strong move against euro, rising this morning to well over $1.31, currently $1.3104.

I had predicted this weakening on the weekend, but really investors are waiting for the midweek release of U.S. trade data. If the U.S. trade deficit sets a new record this week, then the USD will tumble again.

A weak dollar makes European exports more expensive or cuts into producers' profits, so the Europeans are unhappy with the Euro strength, which they see as mostly a U.S. administration weak dollar policy. European Central Bank President Jean-Claude Trichet, has characterized the USD's collapse since September as "brutal."

Traders today are focusing on the USD-Yen pair. In early trading, the U.S. dollar bought 104.31 Japanese yen, down from 104.88 Friday.

There is talk of a Yen falling well below 100 soon, and the reason for that is that there is a belief that China will finally float the Yuan against the USD. Dreamers. It's not likely to happen until rising interest rates in China cause problems with their domestic economy, which is unlikely until 4Q05 or 1H06.

A Yuan that moves higher would enable the Chinese importers to buy more Japanese manufactured goods, really helping the Japanese economy in the process.

BCara@BillCara.com