haraka haraka haina baraka - hurry, hurry has no good fortune

Foreign Exchange : Today the US House is supposed to vote on the stimulus bill, now up to $816 billion. Then it goes to the Senate. Everybody and his brother is urging fast action.

There is an adage in Swahili, "haraka haraka haina baraka," meaning "hurry, hurry has no good fortune." Yes, the word "baraka" is the same root as Barack Obama’s name. It's a splendid adage and perfectly true. The stimulus package is likely to be a dog’s breakfast and it may not work. Even if it were carefully designed, it still might work and nobody can accuse the plan of being carefully designed. Experts don’t really know whether Roosevelt’s stimulus plans would have worked if the war had not come along. (Two recent books feature the uncomfortable fact that many of Roosevelt’s plans were really hatched by Hoover, by the way.)

But set aside doubts about the stimulus plan and even the upcoming Fed announements or the "bad bank" rumored for next week. The three big initiatives may be badly designed and may not work, but the market is starving for good news and optimism. Unfortuantely for trend-followers, optimism and a renewed appetite for risk are US dollar-negatives. The trend could be breaking.

Gee, that means we need more bad news if we want to be buy US Dollars - how bizarre is that?

Bye For Now

Barbara Rockefeller

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today the Fed starts the policy meeting

Foreign Exchange : In addition to data like Case Shiller home prices and the conference Board consumer confidence index, today the Fed starts the policy meeting. We can perhaps expect two outcomes.

One is a revision of the Fed's forecasting time horizon. Retired member Mishkin said "Interest rates are no longer what monetary policy is about. A much more important part of policy now is managing expectations, and, in an environment like the one we are in now, having more clarity on inflation objectives becomes critical." In other words, we could get an inflation target but it would apply for a longish timeframe, like 3-5 years.

The other big subject is managing the balance sheet, already ballooned out of all recognition. We are pretty sure the Fed is going to buy Treasuries, in part to manage the long-term rate, but how is it going to get out of the market-manipulation business? In other words, what’s the exit strategy? We’d like to know that at the beginning, before the entry.

We say it's much too early to consider fear and more fear to be losing its grip. If bad debt really is $2-3 trillion and only $1 trillion has been disclosed and addressed, more shocks are to come. The US dollar exchange rate remains a good bet even if it’s not straight-lining anymore.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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US dollar exchange rate is softer at the start of the week

Foreign Exchange : The US dollar exchange rate is softer at the start of the week, led by the Canadian dollar for once, as the prospect of a US stimulus plan and perhaps formation of a "bad bank" encourages less risk aversion. Both oil and hold rose strongly on Friday, too. But this week we get an overwhelming amount of new data and information, nearly all of it bad, including a flood of US company earnings reports. The market has recently retreated from panic mode - and panic favors the safe-haven dollar - but panic could or should be building again this week.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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US Congress discussing and passing the Obama $800 billion stimulus plan

Foreign Exchange Outlook : This is a week of an overwhelming amount of information. Nobody can absorb this much information, let alone analyze it and put it into perspective. Aside from the US Congress discussing and passing the Obama $800 billion stimulus plan, nearly all the news is going to be bad. As we have seen recently, bad news is US dollar favorable because risk aversion rises.

Tomorrow is the start of a 2-day Fed meeting.

With the target rate range already zero to 0.25%, what can the Fed say to impress anyone? The FOMC needs to make a powerful statement lest anyone notice that it has run out of ammunition, presumably more talk about quantitiative easing. This will probably take the form of expanding the TALF (Treasury Asset-Backed Liquidity Program) to include not only Treasuries but also CMBS (commercial-mortgage-backed securities) or private-label RMBS (residential mortgage-backed securities), according to Market News. So far the government has not actually bought any Treasuries, let alone private paper, but we probably should expect it this week.

Also tomorrow Congress starts debating the Obama stimulus plan, which Obama wants done by the President’s Day national holiday on Feb 16, or two weeks from today. The Feb 16 holiday is a compromise date between Lincoln’s birthday on Feb 12 (also Darwin’s birthday, take note) and Washington’s birthday on Feb 22 (also USAF Col. Gary Rockefeller). We guess the stimulus debate will not be bi-partisan, judging from the Sunday TV talk shows where Republicans have one solution to everything, including athlete’s foot and the flu - tax cuts.

Also tomorrow is the start of the Davos World Economic Forum, for which the high and mighty pay a gaint fee to attend (Chf 42,500). The WSJ says 40 heads of state will attend this year, up from 27 last year, and some 1400 CEO's. Everyone will be talking about how bad conditions are and how much worse they can get, especially since the IMF is expected the next day to lower its global growth forecast to a mere 1%. The WSJ says that among the scheduled speakers is Richard Olivier, son of the late British actor Sir Laurence Olivier, who runs a motivational seminar company. Olivier says "The capitalist myth is lovely and youthful. It kicked off the industrial revolution, but maybe we need a new one." He will compare MacBeth to Lehman Bros.

Oh, good grief.

Anyone who thinks capitalism is a myth shouldn't take the stage in the first place.

Also tomorrow is US existing home sales and the Case Shiller home price index for November. Thursday brings Dec durable goods orders, taken as a leading indicator of everything from industrial production to employment. From an economics point of view, the biggie is Friday’s US GDP estimate… and the Friday after that, the Dec payrolls number.

There probably is some good news in all this somewhere - some data last week was not bad, like the University of Michigan consumer confidence index (61.9% from 60.1 in Dec and the highest reading since Sept). But the ain’t over yet. We await other dire news, like German bank failures or the Chinese declining to buy US paper (they could buy Greece instead), and so on.

Bad news is US dollar-favorable. We do not have strong evidence of the trend failing, and the trend is our friend.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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Why are we not as afriad of potentially $1 trillion in toxic paper at German banks as we were on Tuesday?

Foreign Exchange Outlook : The US dollar exchange rate is not through rising, and we make that assertion on the grounds that the world is not through throwing unpleasant surprises at us. Why are we not as afriad of potentially $1 trillion in toxic paper at German banks as we were on Tuesday? Besides, various coutnries could actually intervene, if not this week, with the intent of driving their currencies down and "creating" inflation. We don't expect this outcome, at least not soon, but surely what they would be buying US dollars. And on the economics front, we concur with the Confederation of British Industry ,which said today it is stunned by the sheer speed with which things have fallen apart. The economic onsequences are deep and long-lasting. The analyst who said he expects recovery in Q1 is dreaming. In short, we haven’t hit bottom yet.

More Shocks are in store, and as we have seen, shocks favor the dollar.

At a guess, though, confirmation of Geithner and upcoming announcements of bailout/recovery plans, if accepted as worthy by the market, are ironically US dollar exchange rate negative. Still, the overall trend is in place and we do not see a reason to expect it to come to a halt.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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Pound to US Dollar fell in a straight line from 1.4900 on Sunday night to 1.3915

Foreign Exchange Outlook : The US dollar exchange rate resumed a strong rise across the board as bank and political crises erupted in the UK and Europe. The euro exchange rate fell yesterday from the high after the open Sunday night at 1.3386 to 1.3055 by the end of the day yesterday in the US, which saw hardly any trading since the banks were closed for the Martin Luther King holiday.

Overnight the euro exchange rate plunged right out of the gate in early Asian trading to 1.2986 and thence to a new low of 1.2919 after Europe came in around 3 am ET. That’s 467 points in about 30 hours. The euro rate is bouncing to 1.2954 at 7 am today but it’s not hard to read the chart—a new phase of the downtrend has started. The euro exchange rate has already retraced more than 62% of the recent upmove and talk will soon begin again of a 100% retracement of the move up from the Oct low at 1.2329.

Pound to US Dollar fell in a straight line from 1.4900 on Sunday night to 1.3915 - almost 1000 points.

Holy cow!

It’s the lowest level since 2001, on renewed disarray in the UK financial sector, with Royal Bank of Scotland needing government rescue on Monday and stocks, especially Lloyd’s, down over 30% today. The government is injecting capital into RBS but an analyst told the FT "The further losses from the combination of deflation and deleveraging will consume these additional funds, leaving equity shareholders at risk of further dilution."

The only currency holding steady is the dollar to Japanese yen, which has been hovering in the low 90's since Sunday night. Euro to Japanese yen and pound to Jpanese yen are both weaker, however. See the charts.

It seems strange to see the pound soft against the yen when the UK still has a yield advantage and a more activist central bank and treasury than Japan during its own lost decade.

Buy For Now

Barbara Rockefeller
Foreign Exchange Trading
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Buying Euros? Buy Euros at the best euro Rates!
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foreign exchange traders sold the euro to 1.3099 today on more bad news

Foreign Exchange Outlook : The US dollar exchange rate rose again yesterday from 1.3282 at 8 am in New York to 1.3138 by mid-afternoon, but was already giving some of it back into the close at 1.3180. The euro exchange rate suffered yesterday from bad economic data and a dollop of worry over fiscal conditions that clearly will violate the Stability Pact and triggered ratings agency downgrades (Spain on top of Ireland and Greece), but then as the euro exchange rates fell under a critical level around 1.3250, foreign exchange traders got worried the euro exchange rate was getting oversold and the market was running out of sellers. The 1.3250 level is the 62% Fib retracement of the euro's upmove from the Oct low at 1.2329 to the Dec high at 1.4719.

Sure enough, the euro rate rose overnight to 1.3338, but when Europe took the trading baton from Asia, foreign exchange traders sold the euro anew to 1.3188 again, not quite matching yesterday's lows but having the virtue of creating a new hand-drawn resistance line on the hourly chart (at 1.3310). Reasons for the euro to dip again include a false rumor that Ireland was already going to the IMF (it's only threatening) and German GDP, which came in at 1.3% for 2008 when 1.4% was forecast and in contrast to 2.5% in 2007. Adjusted for working days, German 2008 growth was a mere 1%.

Sterling, dollar to japanese yen and euro to Japanese yen made a similar small corrective bounce. The correction may not be over, alas, and could turn into a bigger upmove - depending on what the ECB does and says tomorrow. Right now we think it’s a minor event but foreign exchange traders have their chaps and spurs on, and are ready to ride a bucking horse.

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