Currency Traders perceive that the Euro is fading

Foreign Currency Exchange Outlook : The big event of the data week is US payrolls tomorrow. Market News gets a forecast range of –40,000 to –110,00, with a median estimate of –75,000. The unemployment rate will probably rise to 5.8% from 5.7%, although we all know it’s actually more like 7-9% if we were to count everyone not counted under today’s procedures. ADP announced it expects a drop of only 33,000 for the private sector, which is (again) a nice outcome, if it turns out to be true. Recession? What recession? Having dissed the recession idea, it’s also true that employment tends to be a lagging indicator and that means the uncertainty can drag on for another 6-12 months.

Retail sales are important as a barometer of the consumer’s mindset. This morning WalMart reported Aug sales up 3% for same-store sales open at least one year, when 1.6% was the industry forecast and WalMart itself has forecast 1-2%. Hmm.

Some folks doubt that the US dollars move has any lasting power, despite its size and force. This is to mistake economic analysis for a sound basis for currency forecasting. Currency traders are a wild combination of economic ignorance and yet astuteness about underlying conditions. Start talking anything beyond stockbroker economics and you get a yawn -“don’t bother me with the facts.” But currency levels are often a leading indicator of what is really going on in relative conditions. Right now currency traders perceive that Europe is fading, and thus they seize upon every negative release as evidence, from IFO to retail sales to contracting GDP. They also think that if the US doesn’t founder under a bigger financial crisis from GSE’s or another source, its basic adaptability and robustness far outpaces Germany’s, impressive though Germany may be today. They have already made the decision that the dollar deserves to be at a higher level than July’s 1.6040, and to predict that they will lose that conviction or change their minds would require certainty of exactly what event or development could cause it.

Since nobody can name such an event, forecasts of the imminent demise of the dollar rally are based on prejudice and hot air, not reality. As George Soros keeps trying to tell us, the price trend itself is a factor, and often the strongest one.

Economic analysis takes a distant place behind.

So, keep the faith.

The trend is your friend.

Bye for Now

Barbara Rockefeller

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