The positives working for a stronger USD are (1) relatively weak economic data from Europe, Canada and Japan, (2) relatively lower central bank rates in Europe, Canada and Japan, as these regions try to kick start their economies and keep them from falling into recession, and (3) the prospects of lower commodity prices in the second half of 2005.

But, really, how likely is the USD to start a new secular bull phase when so many other factors mitigate against this scenario?

Traders are watching (1) the growing U.S. trade deficit, (2) the likely narrowing gap between the U.S. Fed rate, which is now at 2.50 percent, and its peers at the European Central Bank (ECB), now at 2.00 pct, but which hasn't risen since last June, (3) any indication that the world's central banks may restructure their currency reserves away from the USD, (4) indications that the unstable political situation in Lebanon erupts, with any degree of U.S. ("freedom and democracy") involvement, and (5) gold prices, which have moved up to the $436 level and seemingly of interest to a world of traders who would prefer to hold gold over USD.

On Thursday this week, the Central Bank of England is meeting to discuss possible changes to its very high 4.75 pct bank rate. The rate is not likely to go higher this month. Else, the domestic house construction industry in England will slow dramatically.

At the same time, the U.S. Fed is meeting on March 22, and may increase its overnight bank rate from 2.50 to 2.75 pct, which would send out a continuing "measured response" message to domestic speculators in real estate that they are playing with fire.

One possible scenario, although highly unlikely, is that the Bank of England (BOE) raises (and ECB follows through with indications that it too will raise), and the U.S. Fed sits tight at 2.50 pct. That event would push gold above $450, and probably higher. But the realistic prospect of central banks taking these actions in light of their economic conditions is minute.

These are interesting times. Friday's U.S. trade data will tell us just how interesting.

BCara@BillCara.com

p.s., I have to leave soon for a hearing test, and will return this afternoon.