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Did someone say “global recovery”?

Scanning the Reuters headlines this morning we find the following array of not so good growth news gracing our otherwise happy Wednesday:

 Eurozone services growth declines—dented by Ireland and Spain
 Spain services sector shrinks
 Portugal economics worsening
 UK retailers had a bad Christmas season
 UK construction contracts unexpectedly fall
 Queensland Australia floods force 75% of coal mines to halt production
 Swiss National Bank won’t accept Ireland bonds for collateral any longer

The euro does not seem happy with this news—it is getting whacked:

EURUSD Hourly:

Currency trading is the ultimate game of relativity. And relative to the eurozone as a collective whole (EU leaders love that word “collective”), the US economy continues to appear relatively better at the moment; the US economy seems in better position to stage a recovery than does Europe (Germany excluded; of course assuming China keeps its many balls in the air).

We are starting to see this relativity in growth expectations show up in the form of rising US yield spreads compared to the eurozone, as you can see in the chart below. Keeping this simple today, you may also notice the tight correlation between the US dollar index and said relative yield spreads, i.e. as the dollar yield differential fell from August to early November so did the dollar index. However, the differential is improving now and the US dollar index is rising:

US-Eurozone 3-month yield Spread vs. US$ Index Daily: