Global growth differentials

Indeed, in the first half of this year positive global growth rate differentials favored the U.S., and traders began to shift their focus onto the economic numbers emerging from the U.S. and the Euro zone. Currently, slow growth continues to plague the Euro zone, while Japan is still struggling to emerge from its battle with deflation.

As global money managers began scouring various markets for the best return, views on Europe and the Euro zone turned negative throughout the first half of the year. The spotlight on Europe ahead of several key constitutional referendums turned out to be a negative factor for the Euro and encouraged additional strength in the U.S. dollar.

The failure by the French to approve the European Union constitution in a key referendum was followed by another resounding “no” vote in the Netherlands in late spring. That news helped launch a new up leg in the dollar through the psychologically significant $1.25 area.

“People began to see that the emperor wasn’t wearing any clothes,” Glassman says. “The structural reform is going very slowly in Europe and there is resistance to it.”

With the Euro zone expected to post gross domestic product (GDP) readings around 1.5 percent, vs. 3.5 to 4.0 percent in the U.S. for 2005, traders began to focus on the likely better returns from the U.S. capital markets.

“At the end of the day, investors are free to put their money anywhere,” Glassman says. “They tend to believe the best returns will come from the regions that are growing the fastest.”

Looking at the global market from a growth standpoint, "right now, the U.S. is the only game in town," Dolan says.