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Three ECB Rate Hikes, Too Much of a Good Thing for Euro?

Technical analysts have been watching the U.S. dollar index more closely than a protective dad watches his teenage daughter's boyfriend.

The index nearly ended through the key support level of $76.20 yesterday, from which the greenback is clawing its way back today. Helping pull the dollar from the abyss are resurgent eurozone sovereign debt worries. Also weighing: Europe's central bank, which till now has been the euro's saving grace, may be putting a nail into the euro's coffin with plans for too much tightening too soon.

"Despite its tough talk, the ECB will likely realize that an aggressive campaign of hikes, rather than just a perfunctory one hike, would imperil the funding of European peripherals' government and bank debts," said Steve Cortes, Founder of Veracruz LLC. "As such, if the ECB does indeed embark on an aggressive campaign, it may well actually be euro negative," he added.

European Central Bank council member Axel Weber indicated today that market expectations for 1.75% rates by the end of the year -- which prices in three quarter-point increases -- may be correct. He cited inflation that might be more sustained than recent ECB comments have indicated.

Fast Money trader Tim Seymour is also in the camp that thinks the ECB may seriously injure the eurozone economy, and the euro, if it moves to raise rates too quickly.

The recent surge in oil prices is already a tax on the economy, the Emergingmoney.com Founder notes. Add to that the recent peripheral credit downgrades, which have put financing costs at insupportable levels, and it doesn't look as though the region could endure the three quarter-point rate hikes Axel Weber suggests are part of the "normalization" of interest rates.

But Fast Money trader Brian Kelly sees the Fed's perennial dovishness putting the greenback at a disadvantage versus the euro. Barring excessive tightening from the ECB, Kelly notes, the euro will come out on top.

"If the ECB hiked 10 times in a year then I would say the European economy would implode and thus the dollar would win, but under the reasonable expectation of a prudent ECB, then yes, the dollar should remain weaker," said Kelly, Kanundrum Capital President.


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Trader disclosure: On March 8, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour owns (AAPL); Seymour owns (BAC); Seymour owns (F); Seymour owns (GE); Seymour's firm is short (FCX); Seymour's firm is short (POT); Seymour owns (IIF); Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Adami's wife works for (MRK); Finerman's Firm Is Short (IWM); Finerman's Firm Is Short (SPY); Finerman's Firm Is Short (MDY); Finerman's Firm is short (XRT); Finerman's Firm is short (IJR); Finerman's Firm Is Long S&P Puts; Finerman's Firm Is Long Russell 2000 Puts; Finerman's Firm And Finerman Own (AAPL); Finerman's Firm Owns (BAC) Leap, Finerman Owns (BAC); Finerman's Firm Owns (BBY); Finerman's Firm And Finerman Own (BP); Finerman owns (C); Finerman's firm owns (FDO); Finerman owns (GM) leaps; Finerman Owns (GOOG); Finerman's Firm And Finerman Own (HPQ); Finerman's Firm Owns (IBM); Finerman's Firm Owns (JPM), (JPM) Leap; Finerman Owns (JPM); Finerman's firm owns (M); Finerman's Firm And Finerman Own (MSFT); Finerman's firm owns (TGT); Finerman's Firm Owns (WMT); Terranova owns (VRTS); Terranova owns (C); Terranova owns (UPL); Terranova owns (ABT); Terranova owns (MS); Terranova owns (PBR); Terranova owns (BAX); Terranova owns (TEVA); Terranova owns (CVI); Terranova owns (RSX); Terranova owns (SU); Terranova owns (CNQ); Terranova owns (JPM); Terranova owns (PNC); Terranova owns (GS); Terranova owns (USB)

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