German banks have $1.1 trillion in losses yet to be recognized

Foreign Exchange - Currency Outlook

Bloomberg has a story saying the US dollar exchnage rate wins whether it’s on the basis of risk aversion/ safe haven or the basis of FIFO (first-in, first-out). We are not so sure it’s that easy. For one thing, there is a component of market sentiment consisting of "confidence." Everyone likes Obama and the new robustness of Congress, with those saying they think the country is moving in the right direction at the highest level in 5 years. But criticism of the TreasSec Geithner is severe (that latest is that he's just a "bureaucrat") and it's not clear that the PPIPS program is a good one that will work. Alternatives are flying around the ether, and from reputable guys.

Meanwhile, Europe will be taking action at the policy meeting next week (May 7). The market has rewarded an active stance, paradoxically even if it entails a rate cut and what is really an admission of systemic failure by adoption of "unconventional measures." Unconventional measures are quantitative easing by another name, and we worry that the market will cheer the euro exchange rate when the ECB finally caves in and joins the rest of the developed world with both rate cuts and quantitative easing.

To complicate matters, we have more data and information this week than anyone can possibly absorb, let alone slot into a decent perspective. Tomorrow we get the Conference Board consumer confidence survey. We get first quarter advance GDP on Wednesday, along with a Fed policy meeting and the Treasury’s refunding announcement, which follows the Q2 and Q3 estimates the day before. Chrysler may declare bankruptcy on Wednesday ahead of the Thursday deadline for a deal with Fiat.

Wednesday is a day to stay in bed with your head under the covers.

The rest of the week is pretty awful, too. Thursday brings the first quarter Employment Cost index, a harbinger of the payrolls report on May 8. Friday gives us March factory orders, the April ISM report, and vehicle sales. Throughout all this, we continue to get earnings reports from all over the map. Considering that the stock market ended the week on an upbeat note, you have to wonder if US equity traders are just determined to plough ahead, refusing to be confused by any facts. The one fact that everyone plans to looks at is inventories. The idea has taken hold that if business inventories are really, really low, that's a good thing because it means business will soon start producing more.

We are suspicious of the US dollars move up on the swine flu story. We find the technical story more convincing, but of course a fresh fundamental can always trump the technicals. Since the stock markets seems determined to go up - while a related market, oil, is determined to go down on discouragement over the outlook - we have cognitive dissonance all over the place. The Foreign exchange market is where these controversies and conflicts get settled.

If the us dollar exchange rate continues firm today, that may mean the world is in worse shape than we thought last week. We are impressed by the story that German banks have $1.1 trillion in losses yet to be recognized. We have always said losses were being concealed in Europe. If this story is true and if it grows legs, we can see a good case for the dollar to recover in a more permanent way. Otherwise, watch out. The dollar can go back on the defensive in an hour.

Pounds to US Dollars = 1.4634
Pounds to Euros = 1.1143
Euro to Pounds = 0.8870
Pounds to Australian Dollars = 2.0444

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Contact IMS Foreign Exchange + 44 207 183 2790