US crude oil inventory report today

The Oct NYMEX crude oil contract closed lower at $91.15 and is down a vast amount (38%) from $146.73 on July 15, two months ago. A move of this size in such a short period of time has to trigger suspicions that a correction must be coming. Bloomberg writes that so far today, we are already seeing prices up, with the overnight high at $95 and the price at 11:25 am GMT at $93.75. We get the US inventory report today, no doubt a drop because of the hurricanes and with Nigerian unrest going into the th day. “Goldman Sachs cut its three-month forecast for crude oil to $115 a barrel from $149, citing the global credit crisis and demand weakness,” says Bloomberg. This is still over $100 and not the drop to the low of the year around $86 that we all want so fervently.

bye for now

Barbara Rockefeller

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We will get a Correction in Euro to US Dollar

Foreign Exchange Currency Outlook : Retail sales today has the potential to damage the US dollar rally. Bloomberg says the consensus forecast is for a drop of 0.1% after a gain of 0.1% the previous month (with a wide forecast range of –1% to +0.6%. We say that if it’s a drop of 0.1%, that’s too small to draw any conclusions. Ex-autos, retail sales probably rose 0.5 percent, but that includes sales at gas stations. At the same time we get July import prices, probably a rise by 1%, pretty tame after 2.6% in June (on oil prices).

Just because data doesn’t support a gloomy deduction doesn’t mean Foreign Exchange traders won’t choose to do it anyway. In fact, if the US Dollar holds its ground on bad retail data, it’s a splendid sign the trend is, indeed, entrenched. Tomorrow we get eurozone GDP and expectations there are strong for a bad outcome -0.2%. It’s not hard to do the permutations and combinations to get the effect on the US Dollar. Good US retail sales + bad eurozone GDP = ongoing dollar rally (the current thinking). Bad retail sales + good eurozone GDP = corrective bounce up in the Euro to US Dollar. And so on. Other factors do exist, of course, including the price of oil, the process of yen carry trade unwinding, more news from the financial sector, and so on.

Unfortunately, factors don’t live in a vacuum. Some traders see a correction coming in oil prices since oil went up a bit and from this they deduce the US Dollar “should” fall.

To this we say poppycock.

Oil is moving down in a meaningful way and carrying other commodities with it. The WSJ has a hilarious story this morning about cotton—are speculators posing as hedgers driving the price up unreasonably beyond normal supply and demand? Gee.

Of course we will get a correction in euro to US dollar. Prices don’t move in straight lines. The round number 1.5000 is the new barrier—we had a level over it on Monday (1.6084) and now dollar bulls want to be sure it doesn’t get there again. That would mean that the upcoming correction would be in the sub 1.5000 area, and we can start talking about minor correction points like 1.4850.

We think that worries about eurozone growth will suffice, especially after the IFO confidence numbers today. And it’s also possible that the drop in Pound and Australian Dollars will be offset by the (temporary) rise in the Japanese Yen so that the US dollar is net even. That pulls additional new dollar bulls into the fray. We confess to being a little confused as to why the Canadian dollar is recovering, and let’s note that the Mexican peso rose on the day, but we can probably assume that these moves are due to local conditions and not necessarily sentiment toward the US dollar.

In fact, the worst thing on the charts today is gold breaking all kinds of important milestone levels including its own new downchannel. That means it’s oversold. In the sad way of the world, a rise in gold implies a drop in the dollar.

It would be too bad if an authentic US Dollar rally gets derailed because of something as dumb as a correction in gold.

Bye For Now

Barbara Rockefeller

For best exchange rates contact IMS Foreign Exchange

So how Low can the euro go?

Foreign Currency Exchange Outlook: Market prices of securities do not move in a straight line, of course, and some analysts are already talking about the dollar move as already over, or nearly so. Bloomberg reports that Foreign Exchange analysts at Barclays, Merrill Lynch and Morgan Stanley, among others, say we shouldn’t bet on any more US dollar gains.

This is because the economic situation doesn’t support a rising US dollar—big problems remain, like the trade and budget deficits.

To say the US dollar rally is over or nearly over is to fail to recognize the power of technical analysis.

Yes, fundamentals can always trump the technicals, especially unexpected fundamentals. The technicals serve to measure trader sentiment, which is mostly determined by the fundamentals. But as George Soros says, the technicals become a factor in their own right when a move is big enough. This is because cascading waves of the newly convinced keep joining the new move. After the first and second corrections, additional waves of the newly converted jump on the bandwagon.

We need corrections to bring in the new Foreign Exchange Traders. Corrections are bad only if your stops were set too close and you miss the second and third waves. The use of the word “wave” is descriptive and doesn’t suggest that we buy into any “wave” theories, Elliott or otherwise. But the price progression on the chart during a big move does look like waves and we are not willing to give up a perfectly good word just because some nutcase theorists are trying to grab it for their exclusive use.

So how Low can the euro go?

Estimates are all over the place. One idea is that the euro tends not to fall more than 2% under the 200-day moving average, which would cap the move at 1.4920. We say the sky is the limit.

How about 1.4366, the Jan 25 low?

The 50% retracement of the move from the Nov ’05 low to the July peak is about 1.3870. If the current move is a reflection of worsening conditions in Europe and the rest of the world while the US is already seeing recovery at the end of the tunnel, this is not a silly idea. Or to take things to an extreme, how about a 50% retracement of the 7-year dollar slide? It started October 31, 2000 at .8229. The high, as we know, was 1.6040 in July. A 50% retracement would be 1.3870. And why not?

We can afford to think big.

Bye For Now

Barbara Rockefeller - Rockefeller Treasury Services

For the Best Euro Exchange Rates contact IMS Foreign Exchange

US Dollar faces worst credit crisis since the Great Depression

Foreign Exchange Currency Outlook : The Fed statement will be released at the usual time of 2:15 pm ET today and we will all be glued to the radio or TV to hear it. Nobody expects a rate change but everyone wants to hear some perspective on how the Fed sees inflation. This is measured by how many members dissent and prefer a US Interest rate hike. Bloomberg writes that Bernanke may “need to sound tougher on inflation to avert the sharpest public disagreement among policy makers in more than a decade. The fastest inflation in 17 years adds to the risk that three members of the Federal Open Market Committee will dissent for the first time since 1992. Gary Stern, president of the Fed's Minneapolis bank, and the Philadelphia Fed's Charles Plosser joined Dallas's Richard Fisher since the last meeting in June in calling for an increase in rates to limit price increases. The trio wield more clout than usual because two seats assigned to Fed governors on the 12-member panel are currently vacant. That means Bernanke must craft a consensus that's responsive to the their inflation warnings while still heeding tumbling housing prices, a faltering economy and the worst credit crisis since the Great Depression.”

We agree that three dissents would be a lot and could be seen as a challenge to Bernanke’s authority. Remember, this was one of the main reasons that Paul Volcker resigned as chairman—he felt the Board should let him have the final say. We say this is almost certainly not a crisis in the making but it may roil the bond market. In the end, two dissents is probably what we will get and that will be digestible.

The recent economic numbers are not adding to clarity. The Q2 GDP version of PCE has a slight drop while the income/spending report version yesterday for the single month of June has a rise. Does the Fed see a contracting economy as a remedy for inflation? After all, there’s nothing it can do about the price of oil perniciously wending its way into consumer behavior. If the Fed thinks inflation is caused mostly by commodity prices increases that will iron themselves out (chiefly via reduced demand), then it has no incentive to raise rates. In fact, the Fed may be seeing incentives to cut, such as the desire to keep banks profitable and if not profitable, at least liquid and solvent. Thus a refusal to change rates can be viewed as hawkish.

While the Fed is the single most important institution in the world, let’s be honest and admit that the level of the US dollar exchange rate has nothing to do with monetary policy today and everything to do with the price of oil. Now that it has fallen under the old low from June, it’s wrong to say we cannot see a trend. Of course we can see a trend—we just need more confirmation of trendedness. The 10-day moving average is under the 20-day—there’s a confirmation of sorts. Better would be meeting the next historical lows ($110.30 from May 1 and $98.65 from March 20).

As an aside, those who favor alternative energy should be ruing the current downward trend in the price of oil—it removes incentives to find a fix, and fast. It also has the side-effect of reducing the political conflict between those favoring offshore drilling and those opposed. We say the knee-jerk “drill, drill, drill” of the tiresome Kudlow and his ilk is a dollar-negative. It’s far more dollar-positive for the US to be investing heavily in energy alternatives—it creates jobs and puts American innovativeness (and idealism) on parade as well as reducing stress on the environment.

In any case, we see the correlation of the US Dollar and oil as continuing. It’s very high, about 90% (depending on what timeframe you use). If we imagine that downward trending oil will get grabbed by the technical crowd, we can expect a retracement of the price rise by some pre-ordained amount, like 50%. Let’s say oil took off in Oct 2007 when it surpassed the old high from July 2006 at $78. A 50% retracement off the highest high of $143 is $112, and that is also near the bottom of the current upward sloping linear regression channel. It is therefore a perfectly reasonable forecast. (Note that $143 is the high for the current contract. At the time, the then-front month contract hit a high of $147.90 on July 11.)

It’s also only $7 away from the closing price yesterday, implying the move may be ending soon. In short, we would need to see oil go under the channel and under $100 to get a truly heavy-duty new trend instead of only a retracing trend. By this definition, we say we do indeed need to surpass the old low from March at $98 to be certain of a downtrend. But in the meanwhile, lower prices should be dollar-friendly in the extreme.

Conversely, if something evil happens and oil does a U-turn back to the recent highs,

the dollar will fall off a cliff.

Can it be that simple?

Yes.

Bye for Now

Barbara Rockefeller

For the Best Exchange Rate contact IMS Foreign Exchange

Australian and New Zealand Dollars

As an interesting tidbit, Market News reports that in Japan, the Tokyo Financial Exchange reports that margin traders have “defiantly bought the Australian and New Zealand Dollars despite expectations for interest rate cuts. They boosted their net kiwi long positions to 211,032 on Friday, the highest on records going back to mid-2006 and roughly doubling in less than two weeks. The New Zealand dollar rose 0.3% to ¥78.45…”

Well, if they have to unwind these trades, the yen would benefit across the board, so it’s a rocky outlook.

Bye For Now

Barbara Rockefeller

US Dollar Exchange Rate

Foreign Currency Exchange Outlook:

The drop in the price of oil, and let’s hope it keeps going to surpass the June low closing ($121.61), really gets most of the credit for the dollar’s rally. The codeword of the day is “demand destruction,” but realistically, Buyers of NYMEX Crude Futures (including exchange traded funds and other “investors”) must be pulling back. The question is at what point they decide that stocks and bonds are a pretty good place to invest over commodities. This becomes a technical issue as well as a simple arithmetic calculation of breakeven. At what prices did they get in? At a guess, about $80. Does that mean the price can go back there?

Why not, and further.

In second place behind the US Dollar rally is not-too-bad data from the US but fairly bad data from elsewhere, indicating trader bias is shifting. Normally when anti-dollar bias is strong, good news is brushed off and bad news is exaggerated. These days, bad news from elsewhere is getting more attention than usual. We like to think it’s because there is recognition somewhere in the back of the collective trader mind that when the US makes a move to adjust and adapt, it works a lot faster than elsewhere. Japan still has the mindset of the lost decade,” for example, and Europe has not even discussed a consumer stimulus initiative, while in the US, the bill was passed quickly and the money has already been spent. The problem comes in the form of “what have you done for me lately?” Markets demand on-going proof of responsiveness, even if little real progress gets made.

Payrolls this morning has the power to change everything, although it would have to be considerably worse than the drop by 65,000-75,000 now forecast to unhinge traders. If the number is at or near the consensus, we may not get the usual payrolls two-way spike—it could be a single spike, US dollar exchange rate up. Let’s say ADP Macro is right and it’s a gain, not a loss—zowie, get out of the way. The dollar could make it to important technical hurdle levels like 1.5350, even if it doesn’t close there.

Don’t count on it, of course.

Longer term, we must expect manufacturing to contract today (PMI expected down to 49 from 50.2) and let’s also keep an eye on the prospect of a Fed rate hike. Market News reports that one estimate has it that the odds of a rate hike in Sept are down to 16% from 40% only on Wednesday. The Fed is simply unwilling to prod the economy when it’s slowing down. While we may assume that the ECB is not feeling as hawkish as it would like to feel, the probability is higher than in the US that a hike could be in store, or that a cut would be more delayed. The relative rates do count. That’s why we name it “the main event.” If US yields are falling, it takes a continuous drop in oil to offset. This makes the dollar rally a shaky and precarious one that can turn around at any time. A currency needs more support than a single commodity price!

So while we welcome the dollar rally, we remain suspicious of its durability.

Let’s get back under 1.5250 first.

If that happens, then the whole picture shifts, like the picture that is sometimes a vase and sometimes a lady in profile.

Bye for Now

Barbara Rockefeller

Foreign Currency Exchange Outlook

Foreign Currency Exchange Outlook : The calendar is rich today, with Q2 “advance” GDP probably the one with the potential to move the Foreign Exchange market. The consensus is a real 2.3% y/y, based in part on $78 billion in stimulus checks, so a bad number (under1.5%) would be dollar-negative. Bloomberg reports that the survey range is a wide 0.9% to 4.2%. Obviously, 4.2% would be dollar-favorable. Market News has a forecast range of 1.7% to 3% and a median of 2.1%, and notes that “The lowest GDP estimate is still far higher than the 1% final seen in Q1 2008 and +0.6% seen in Q4 2007.”

More interesting is the question of how you can have a recession without getting the conditions that define a recession—two quarters of negative GDP.

There is a sense that you can have a recession without meeting the definition if everyone agrees it feels like a recession.

We do not agree. Definitions count. If GDP is not doing the job, get another definition. How about falling employment or rising unemployment? We think employment is probably lagging and not leading, but let’s say for the sake of argument that it’s a good indicator. Today we get first-time unemployment claims— with the forecast for a 9000 drop instead of the usual rise. So that one doesn’t work, either, at least not this week and not if you have a bias to find recession somewhere, anywhere.

Golly, maybe we don’t have a recession.

Economists, according to a Bloomberg survey, put the odds of a recession down at about 50% from 70% in April. The NBER is the arbiter and sticks to the idea that recession is a “significant” drop in activity over a sustained period of time, usually taken to mean 2 quarters. Decline should be visible in GDP, payrolls, production, sales and incomes. Well, we’re not getting it except in employment, where job losses are about 500,000 so far this year, according to Bloomberg. A lot of time is being wasted looking back at the 2001 recession, which was over before the NBER had decided on using the word. Merrill Lynch’s Rosenberg, however, points out that Q1 2001 GDP was originally reported up 1.2% and only later revised down to a 0.5% drop.

The world is gradually changing cyclically. Emerging markets like China and India are in more trouble than they are admitting and can be expected to slow down. Western economies are stable and not as weak as some headlines would try to scare us into believing.

A commodity bubble bust would be healthy for everyone and help restore some balance, but the status quo before the oil crisis was not exactly stable and balanced. With various factors in a topsy-turvy condition, including the Fed lending buckets of money practically to all comers on questionable collateral, we are having a hard time believing in the US dollar rally. Oil simply must resume its downmove for the dollar to hang on to gains, let alone make new ones.
Weirdly, we have two medium-term technical analysis systems.

One has a strong sell signal and the other has a strong buy signal.

This is maddening. Watch out.

If you are risk averse, this is a good day to get square and stay that way until Sunday night.

Buy for Now

Barbara Rockefeller

We like the US Dollar rally

Foreign Exchange Currency Outlook : At 8:15 am today, ADP Macro releases its estimate of private sector payrolls (to be released Friday morning). We hate to admit it, but it’s an important number. It’s disheartening that economists, even economists with a very big amount of inside information like ADP, do such a bad job of forecasting this piece of data.

One of the issues with the ADP Macro information today, GDP tomorrow and payrolls on Friday is that each one of them has the power to reverse the psychology of the currency market in a nanosecond. One day we are all wailing and moaning about less than half of subprime losses disclosed and the IMF saying the financial crisis is not over by a long shot, and the next day we are all rallying the US Dollar like mad on rising stocks and falling oil. We need to mention that a steady diet of bad news out of Europe is helpful to the dollar rally, since foreign exchange traders perceive the US is closer to the end of the “recession” than Europe, while Japan is just starting.

This flip-flopping and zigzagging is unhealthy. Normally it takes a much longer time, a few days at least, for sentiment to reverse. We like the US Dollar rally but feel that it’s fragile and vulnerable to a crash if some piece of really bad news comes out of left field. As Mr. Malkiel liked to say, we can’t forecast the news. This is not strictly accurate. We can forecast the news, at least the regularly scheduled news, at least some of the time and within a forecast range. This is the sense in which price changes based on news are not random.

But he’s right that what we can’t forecast is Shocks.

The list of potential Shocks is staggering.

First among them would be a new oil supply problem, and especially if it’s associated with a big “geo-political” situation like Iran. If Israel were to start something (or respond robustly to something), oil would zoom back up to $150 and beyond, probably $200. This is why oil price forecasts are so iffy, not to mention that nobody knows how to measure the true breaking point of the speculators (at which they run for the exit).

Another shock could be a terrorist event, or a regional bank failure of some size in the US or Europe, or a political assassination, or a big country officially announcing reserve diversification out of the dollar, and so on.

We need to be especially vigilant these days.

The dollar rally is tiptoeing on thin ice.

There be monsters below.

Bye for Now

Barbara Rockefeller

We are not going to rush into dumping US Dollars just yet

Foreign Currency Exchange Outlook

Today we get durables goods and new home sales, both probably on the bad/low side, but let’s save time and be realistic—the fate of the US Dollar today depends on calm returning to the financial sector (equities rising, bond prices falling) and on the price of oil. For what it’s worth, new homes sales are expected to drop to a rate of 504,000 in June after dipping to 512,000 in May, and durables are forecast to fall 0.5% in June after being steady in May.

As we noted yesterday, the housing sector hasn’t bottomed yet and on that basis, it was premature for the US dollar to be rising. The Foreign Exchange market trades on expectations and quickly puts bad news behind it—perhaps too quickly. We had three Fed officials talking the hawkish talk, but that doesn’t mean the Fed itself feels it has the latitude to walk the hawkish walk. Revived hopes of a rate hike this fall were not realistic. Every single thing would have to line up to get that outcome, and how often does that happen?

Even if yesterday’s US Dollar selling was an overreaction to events in other markets, we can’t call an end to it. Dollar selling gets to be a habit. We would guess that the day ends badly for the dollar but the week will see a net gain. This is going to cause fingernail-chewing Sunday night. Which to choose—the potentially recovering US Dollar or the same-old, same-old bet the ranch against it? We are somewhat inclined to like the idea of a more enduring dollar rally. After all, we will be getting a very big new housing market rescue bill any day now, plus oil could stabilize near lower levels around $120-125, which is very dollar-friendly. The market just swallowed a ton of US government paper without demanding higher yields. And perhaps the worst of the housing crisis really is behind us, not to mention the financial market disclosure.

It’s possible the NAB write-down is not the canary in the coal mine, but rather the last hurrah.

We are not going to rush into dumping US Dollars just yet.

Bye for now!

Barbara Rockefeller

price of oil would fall like a rock.

Foreign Currency Exchange Outlook: As noted yesterday, it takes a steady stream of decent US data to keep the US Dollar defended, but really bad news from elsewhere can help, too. On Thursday we get the IFO report on business sentiment from Germany, always an influential number, plus the flash estimate of manufacturing PMI. We get Euro Zone industrial orders and eurozone PMI, too, and in the UK, consumer confidence, retail sales, and BoE minutes.

We might call it “dueling data”—who has the gloomier outlook? We say it doesn’t matter. As we saw with horrendously bad news from the UK yesterday (the government predicting “years” of slowdown), Currencies don’t always respond the way they “should.” Pounds Sterling didn’t fall on the news, and even ended the US day back over its own round number, 2.0000.

If the IFO index comes in down to 100.1 from 101.3 in June, as the Bloomberg survey suggests, so what? The euro may take a dip but nobody really thinks the ECB makes monetary policy on the IFO index. The ECB claims to have no bias but everyone thinks it secretly has a bias to tightening, even if the forecast has been shifted out from the fall to January. In the absence of a parallel tightening intention in the UK and US (or Japan), how can the euro not proceed higher against all three currencies? Yesterday Euros vs Japanense Yen made a new lifetime high of 169.92, close to the round number 170. The crosses often get the action when Foreign Exchange Traders are a bit confused about the US Dollar outright, but this never lasts for long. Last Tuesday we had a new lifetime high of 160.40 in Euros to US Dollar. We have almost no hope of that level failing to get reached again, if not this week, then sometime this summer.

We continue to think that if by some miracle oil were to slip down to $1.20 and stay there, the dollar has a fighting chance. What can make oil fall? Well, falling prices engender more decline as “investors” perceive excessive risk. Many of these investor really are investors and not speculators, meaning they are accustomed to less volatile outcomes (and less leverage). What changes the outlook for the supply demand picture?

One thing might be a true drop in perceived future demand from the US if the US were to embrace alternative energy in a big way. T. Boone Pickens is heavily advertising his wind power ideas. While a majority of polled Americans favor offshore drilling, a majority also favors environmental protection and alternative energy—the survey results depend entirely on how you ask the question.

Let’s say we get some political leadership on this. It certainly won’t come from the oil company-addled Republicans, so it would have to be Obama. We don’t know if he would do it, but let’s say he does create a new department on alternative energy and puts somebody really good in the top job, like Schwarzenegger (who volunteered). Boy, the price of oil would fall like a rock. This is the sense in which Obama is seen as potentially very favorable for the US Dollar, contrary to the big government/excessive spending picture that the opposition generally paints of the Democratic party. Everyone likes the fiscal rectitude posture of the Republicans, their business-friendly stance and their supposed foreign policy toughness, but remember, oil is everything. If Obama embraces alternative energy and that causes the price of oil to fall, it’s a win-win. Trouble is, we don’t actually know much about what Obama stands for.

Wishful thinking? Alas, yes. But it’s been a long time since Americans had wishes.

As the election cycle proceeds in the US, we will find that it plays an ever larger role in currency markets. Meanwhile, we have to watch the stock market, which leads sentiment and to a certain extent, the economy. If we are going to get a small bank failure, we could be starting to find out about it this week. Today Paulson speaks, presumably in support of his plan for rescuing Fannie and Freddie, but that’s already old news. It’s possible that last night’s US Dollar rout really will fizzle, as seems likely this morning. But stay tuned.

Soon the little stuff will morph into Big Picture stuff.

Bye For Now

Barbara Rockefeller

US dollar to hang on to gains

Foreign Currency Exchange Outlook; Not to rain on everybody’s parade, but the stars have to line up exactly right this week for the US dollar to hang on to gains. First, oil has to stay low and appear to be going lower, whether we consider it a correction or a true change in sentiment. This means that any hurricanes nearing the Gulf have to veer away. Don’t you hate it when financial outcomes depend on the weather?

Second, regional banks have to be seen as not on the brink of failure. If we get another bank failure like IndyMac, it has to be some small outfit that nobody much cares about—it can’t be one of the big “regionals” like Wachovia.

Third, the economic agenda has to continue to bring no nasty surprises. This morning (10 am) we get the Conference Board leading indicators, probably a drop by 0.1pc in June, according to the Bloomberg survey. The forecast range is –0.4% to +0.3%. Bloomberg points out that 7 of 10 indicators are already known, stock prices, jobless claims, building permits, consumer expectations, the yield curve, supplier delivery times and factory hours. The Conference Board estimates the remaining three: new orders for consumer groups, bookings for capital equipment and the money supply. This means the number is probably already priced in and may not have much influence on any market.

Tomorrow it’s the OFHEO May house price index and on Thursday, June existing homes sales. Friday has June new home sales. We know they are going to be bad, don’t we? Friday brings June durables, which might be good because we know autos were up. Also Friday is the usual University of Michigan July consumer sentiment index (final).

Stock market guru Sandi Lynne says the biggie will be Wednesday’s Beige Book, which will be the last ahead of the August 5 FOMC. “If the word ‘deterioration’ crops up frequently in the Beige, it’ll compete with price pressures, in all likelihood.” But still, we get speeches from Philadelphia Fed Pres Plosser, already known to be a hawk, following Minneapolis Pres Stern last week, also a hawk. Nobody expects the Fed to hike on Aug 5 but a little dissent would go a long way to suppress outrage that the Fed has abandoned price stability to help the Wall Street oligarchy instead.

It’s a rotten thing to say, but the US dollar’s firmness this week relies to a certain extent on news from elsewhere being worse than in the US.

This is especially evident in the UK and sterling, whereas we get the opposite effect in Germany and thus probably the euro. The implication is that when Foreign Exchange Traders are uncertain about the US Dollar outright, they head for the crosses. Let’s say sterling does take off to the downside—it may do worse against the euro and yen than the dollar, but if the euro and yen rise against the pound, they may also rise against the dollar.

We deduce that this is going to be a bad week, choppy in a narrow range and lack of clarity on exactly where sentiment lies.

Bye for Now

Barbara Rockefeller

We should all be scared half to death that the US Dollar is rising

Foreign Currency Exchange Outlook: As they used to say in the Clinton Administration, It’s the economy, stupid. Now we have to say, It’s oil, stupid. While it’s nice to have a stock market rally and even nicer for bond yields to be rising, these are frothy things. What’s real is oil, and oil is having the most reliable relationship with The US Dollar that we have seen in recent years among any two asset classes.

We should all be scared half to death that the rising US Dollar, or at least the US Dollar not falling through to the basement, is built on something we fail to understand, the workings of the oil market. Analysts can offer plenty of reasons for oil to be retreating, but most of the reasons have nothing to do with actual supply and demand, including the airy-fairy idea that the US will resume drilling on the Continental shelf (over Al Gores’ dead body). Therefore, while we are perfectly willing to entertain the idea of an ongoing dollar rally based on a temporary drop in the price of oil, we don’t trust it one inch, and you shouldn’t, either.

All we can forecast for sure in the coming days is continuing volatility. Options traders must be ecstatic. The rest of us should be very, very cautious. At a guess, many Currency Traders are hunting for a US Dollar high to sell it for a longer-lasting slide. That means we should be looking for good places to buy things we think we have a grip on, which unfortunately number only two today—the CAD and AUD. Late today, picking positions for Sunday night is going to be just awful unless something happens today.

As long as oil slides downward, we have to accept a stronger dollar—but it’s on a flimsy basis that can disappear in a flash. Oh, dear.

Bye for Now

Barbara Rockefeller