By Cliff Wachtel: The following is a continuation of part 1.

Here's what could reverse the USF's bullish prognosis for the rest of Q3.

1. Appearance of Genuine Progress Towards An EU Crisis Resolution

With the EU's very survival in question, sentiment is so negative that any sustained flow of good news could send the EUR soaring. As noted above, that alone is enough to send the USD lower.

While the EU's track record for solving this crisis could hardly be much worse, markets have shown a remarkable capacity for self delusion and misplaced optimism and trust in the EU leadership. So, if the EU can string together a few weeks or months of positive news, that calming could slow demand for safety currencies and spark a risk asset rally that would reverse recent USD gains.

It could happen. We've seen long rallies sustained by:
  • Spurious bank stress tests with nonsensically low standards
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