It’s not just the DIRECTION of change that matters, it’s the relative RATE of change. The dollar has been crushed over the last two years. For example, it’s declined by about 20% versus the Euro since the beginning of 2006. Therefore, about 10 percentage points per year of “sales increases” in Europe reported by US multinationals were due to the exchange rate differential as opposed to actual volume increases over the last two years. So, yes, real demand increases will HELP to offset any negative currency issues, but they won’t offset the currency issues altogether. Without the help of a depreciating dollar, by definition results will increase at a decreasing rate (that is, positive first derivative, negative second derivative). And if there is a global recession then even volume increases could come into question.
