we have faith in the world’s ability to produce more bad news.

Foreign Exchange - Currency Outlook

The most important comment today is from IMF Director Strauss-Kahn, the former French finance minister. Going into G7 today, he said "The problem is that the effect on the real economy, for the most part, is still to come." All the talk of better financial market regulation (the focus of French FinMin Lagarde as well as US TreasSec Geithner) is certainly needed, but we don’t have a clue as to whether G8 or G20 can coordinate initiatives and polices to get the global economy rolling again. It looks like differing priorities and ideologies are getting in the way. Everyone has a stimulus plan but each is independent of the others because of domestic political considerations. We find it curious that Germany is the most reluctant stimulator. This could be because the German banking system is in dire straits, worse than we know.

Some say that improving conditions in the housing sector are the key, chiefly halting the rising trend of foreclosures.

We do not agree.

Housing is a critical component but fixing it, even if that were possible, is no longer sufficient. Now the focus needs to be on the banking sector. Quite apart from the question of whether banks should survive horrendous management mistakes and in what form, the modern economy needs the multiplier effect of fractional reserve banking. Like it or not, it’s the bedrock of all modern economies. It’s why the North Dakota economy is okay and the economy of (say) Kenya is not.

Let's not get into whether fractional reserve banking is an evil thing, as some self-described Libertarians and various nut-jobs say. Evil or not, it's the way the world works and has worked for nearly a century, and there is no viable alternative (and certainly not gold). For all of us to have incomes, let alone "wealth," banks must lend. Fixing the credit system is Job One. It comes even before better regulation, much as it pains us to admit it. It comes before questions of trade protectionism and the distribution of hand-outs. If the banks are not lending, economies will continue to shrink. The UK, somewhat ironically, has been the leader in prodding banks to lend, followed by the US.

If all we do is follow risk aversion as measured by US initiatives or stories about initiatives and the stock market's reaction to the stories, we'd have to guess that the US will continue to deliver good news. This is not a vote of confidence in the Obama administration but rather a reflection on the way things get done in the US—fast, and changing fast if the response is not favorable. The problem for us in the Foreign exchange market is that good news means a drop in risk aversion and thus in the dollar. The dollar benefits from safe haven inflows that are much bigger than what we see in the bond auctions or even the Treasury's capital flow report. It’s hot money with a holding period of one day. If the financial world decides to invest in (say) higher-yielding and still-growing places like India and China, the US dollar is the thing that gets sold.

Having said that, the contraction in European GDP today means the ECB will be cutting rates (while the US is done with that one). Paring positions ahead of G7 was always to be expected. A weekend announcement of yet another financial sector problem - possibly in Europe - could change everything back to a loss of appetite for risk - and it "should." We are not willing to abandon a trend that is clear on the charts and clearly backed by realistic economic analysis for a flyer on other currencies whose countries have yet to admit to structural economic problems. In other words, we have faith in the world’s ability to produce more bad news.

Euro Exchange rate last at 1.2867

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

Pounds to US Dollar rate rallies as things are worse elsewhere

Foreign Exchange - Global Currency Outlook

For stock markets to rally, even a little, on hope of an okay payrolls number and an acceptable Geithner plan is the triumph of hope over experience. The reduction in risk aversion is premature. A few points - Geithner was the NY Fed president who helped design the original $350 billion TARP handout that overpaid by 25-30%. What makes us think he can do a better job only a few months later? To be fair, maybe nobody can do a good job but that’s not what matters. What matters is that markets are so tired of fear and more fear that traders are grasping at straws. A little greed feels like relief.

But it’s just wishful thinking.

For another thing, the Jan payrolls number is not the only data point that counts. The combined totals over several months (and historical revisions) matter, too, not to mention the rest of the first quarter. Feb is a short month but it won’t be until the first Friday in April that we see the scope of the job losses. We could have had four months of 500,000+ losses, or over two million newly unemployed. This is going to scare the pants off everyone, and rightly. The Obama simulus plan is supposed to save or create 3 million jobs.

Well, two-thirds of it is probably already gone.

Foreign Exchange Analysts blythely say that if the payrolls number is horrendous (say 650,000), the us dollar exchange rate is expected to rise on renewed risk aversion (and presumably send the yen higher again). But back in the sane world, bad payrolls on this scale are bad for the US economic outlook and it’s simply ridiculous to expect a huge disconnect like this between growth and the currency to be long-lasting. At some point, the US and the US Dollar have to be punished for bad results. If your economy is getting a grade of F, your currency cannot thrive for long.

Unless "things are worse elsewhere." And they are. We still have not heard of all the scandals teeming under the surface of the European banking sector. Some of the European economies are in worse shape than the US, which must mean defaults and failures are about to hit the fan. Moreover, Trichet and the ECB are having a "profound" discussion of liquidity traps and why inflation is still a big risk. This is fairly dumb. The US, for all its faults, actually looks better. Whne the messy, inadequate, politically screwed-up US actions look good relative to others, the world is in truly, deeply bad shape.

No wonder gold is holding on to gains over $900 and clinging to the top of its channel. Many forecasters agree that another run to $1000 is inevitable given the high degree of uncertainty in the world today - regardless of the dollar rising or falling. UBS. For example, see demand doubling in 2009 from 2007, chiefly on the long-term inflation outlook. We say this is facile and simplistic. We will get economic contraction everywhere with falling incomes and falling wealth. Inflation is years away, not weeks or months. If this perception gains traction, gold is likely to fade back to the linear regression on the perception that yield is a desirable thing in a near zero-return world and that liquidity is a priority and not something to be shrugged off.

As always on payrolls date, we advise you clean your desk today and not hold any Foreign Exchange positions.
This is a crapshoot, not high-level decision-making based on deep intellectual considerations. You may want to sell euros up around 1.2950 if the payrolls number is really bad on the expectation that the dollar exchange rate will gain on the day and into Monday. That’s a medium probability outcome but it’s still gambling.

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

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
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

We wouldn’t touch a new Foreign Exchange position with a bargepole

Foreign Exchange Outlook : Politics is playing a big but unmeasurable part in the FIFO recovery scenario that underlies the US Dollar recovery story. The NKS writes today that "Expectations for the measures had prompted massive US dollar buying in recent trading on hopes for a U.S. economic upswing." Really? Outside of Japan, we have not seen many foreign exchange trader interviews focusing on the Obama Effect.

We still think it's the US secret weapon and the world has not yet acknowledged it. One reason for this is the "empty suit" argument. Let's say we get new infrastructure spending and get it faster than now expected. Two points remain in question. Will the roads and bridges be well-built and without cost overruns? History is not sanguine on this one. And how is the newly unemployed 55-year old office worker going to benefit from shovel-wielding jobs that he himself can't get or take? Obama's big plans, which we will hear about today, are already being questioned. It’s one thing for insiders to say he is a pragmatic guy. It’s another to fight a tsunami with a pickaxe. It’s simply not clear that all the tools at the disposal of the US government are sufficient to get the job done. This is a confidence issue and it requires a continuous diet of rhetoric. If the stock market responds favorably today to the Obama speech, we have a prayer.

All the same, the new data from Germany - industrial orders down over 25% y/y - makes the point that "it's worse elsewhere." Yes, Germany is taking new initiatives, but is it fair to assume Germany can pull all of Europe up by itself? Employment is slower to drop in Europe than in the US, but the manufacturing sector is clearly going to contract, raising unemployment again. This has a domino effect throughout Europe. We have to ask whether the "conditions worse elsewhere" factor is going to take the heat off the US dollar exchange rate response to the payrolls report tomorrow. Now that we have had a shockingly high number from ADP, does a better actual number produce a relief rally-or what? Foreign Exchange Analysts say there are serious methodological problems and differences between the ADP and BLS statistics. This is really, really annoying, not least because payrolls is such an important number in evaluating the depth of the downturn and also because of the currency market effect.

We’d like to see the euro exchange rate dip back under 1.3500 today going into the report tomorrow. We have to be prepared for a jump to 1.3800, though. Conditions are wild. We can hardly remember the last time conditions were this uncertain and vulnerable to a new black swan. We wouldn't touch a new Foreign Exchange position with a bargepole. We issue buy/sell signals because you pay us to have an opinion, but realistically, the odds are only 50-50 these days of getting anything right. The wise course is to stand aside and wait, even at the risk of an opportunity loss. If you are not convinced that the market is wildly irrational today, take another look at sterling.

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

The financial sector crisis is bad enough but a stock market meltdown is more than symbolic—it’s true wealth destruction.

Foreign Exchange Outlook : G7 will meet starting this Friday but it seems sensible to conclude from prices that the Foreign Exchange market has zero faith in G7 to take any action that will change the landscape. What we got instead was action from the central banks. This has a number of ramifications, not least that political institutions, including ministries of finance/treasuries, are shackled, whereas the least political institution, central banks, can take action.

In short, government gets in the way.

The best thing governments ever did was to make central banks independent.

What it also means is utter desperation. It is commonly accepted that interest rate levels have virtually no influence on trust and confidence, the lack of which is at the heart of the current liquidity and credit crisis.

What is important is whether European Interest Rates stabilize today and tomorrow. While the US banks are underbidding for special TAF money, the ECB, Swiss National Bank dollar offerings were over-subscribed with coverage ratios of 4.43 for the eurozone and 2.23 for Switzerland. The credit and liquidity issues are bigger in Europe than in the US and UK. It would be nice to think that the US and UK may now stabilize, each with its big plan, but if it is true that the world is flat, the US and UK need Europe to stabilize, too.

At some point the public is going to wake up to what the central banks undoubtedly already know -the US taxpayer will be rescuing banks in Spain and Italy. This doesn’t mean the US will take a loss -the ECB stands behind all its US dollar borrowings—but at some point it will look like an expensive bailout at US taxpayer expense. Just as the Mexican Peso bailout ended costing the US taxpayer nothing, this one will likely not be a net drag, either, but politically it’s dynamite. Top officials in Europe, like Brown and Germany’s FinMin Steinbrueck, blaming the US for everything, is not wise. It was hardly the US that allowed/encouraged European banks to leverage themselves to 50x.

This crisis is worse than we thought. We are still grappling with the economic outlook now that credit is sure to be cut to vastly lower levels for a long time to come. We do not have an estimate of what proportion of firms in the US absolutely, positively need to borrow to buy supplies and make their payrolls, but it must be a big number. Let’s say it’s 50%. Does that mean activity (GDP) will contract by 50%? Not exactly, but it’s not 5%, either. And the more stock markets fall and the cost of overnight and short-term money rises, the longer it will take to dig ourselves out of this mess.

We don’t know why the governments do not simply declare for the stock markets the equivalent of a bank holiday, which was the tactic used in the 1930’s. It’s not a run on the banks, like then, but it’s a run on the stock market. So far today stock markets are responding favorably to the coordinated rate cuts, but in the end, it’s foolish. Economic contraction is still ahead and any analysis of the situation that doesn’t take that into account is simply wrong. Yes, some companies will do well in terms of ongoing business - those who don’t need to borrow and who peddle essential items (Cramer names household goods suppliers like Colgate - we still need to brush our teeth during a crisis).

But stocks are certainly headed thousands of points lower and any rallyette today is a time to sell anything still on the books. Note that getting money of hedge funds is hard—they all have notification periods of 60-90 days, so that even a fund of funds, which faces the same notification criteria—is stuck holding ever lower-priced assets. It’s not the job of the government to protect rich people who invest in hedge funds or funds-of-funds, but surely they are not offal to be kicked to the dogs. The financial sector crisis is bad enough but a stock market meltdown is more than symbolic—it’s true wealth destruction. People who could tolerate and wait out the drop in home values are not going to be so calm about seeing their portfolios go to hell, too. There is an authentic wealth effect, even if we can’t measure it very well. People who feel poor simply do not spend. The consumer is two-thirds of the US economy. If industry is going down and the consumer is going down and finance is already in a hole, what is left? Government. What a terrible thing to be forced to say!

Out of all this emerges the ultimate vote-of-confidence—the dollar exchange rate. We continue to think that aside from the US dollar to Japanese Yen, the dollar will do very well against the other majors. Not because the US is superior in any way, but because the US is the biggest and the first and the most essential. We see the pound to dollars exchange rate down around 1.6500 (long-term) and the euro exchange rate at 1.2000 before year-end.

This may be one of the greatest George Soros standard Foreign Exchange trading opportunities ever.

Buy for Now,

Barbara Rockefeller - Forex Trading Reports

Best Exchange rates when exchanging pounds to euros visit IMS Foreign Exchange

If Europe wises up and announces a coordinated plan, however bad, the euro carnage could stop

Foreign Exchange Rate Outlook : Trichet gives a speech this morning, but all eyes are on Bernanke, who will report on the economic outlook (12:30 pm ET) to the National Association of Business Economists in Washington. G7 meets Friday in Washington. European finance ministers are meeting in Luxembourg today. As we have noted before, an institutional development can always trump the trend. If Europe wises up and announces a coordinated plan, however bad, the euro carnage could stop. What’s really strange is to see the euro exchange rate falls so far against the Japanese yen, when Japan really has very little to recommend it except a banking sector not in crisis.

Something will happen to halt this move, although nobody can say what it is just yet. Maybe regulators will close the stock exchanges, although that’s a third-world kind of action (take three
times yesterday in Brazil). Perhaps the Europeans will come up with something that looks like a plan, even if it isn’t. Britain seems to be a half–step ahead of Europe institutionally but facing a potential interest rate cut this week. The US Treasury needs to get started right away on using it’s $350 billion to unclog arteries. If the credit and liquidity crisis go on into next week, recession will be the least of our worries. We are an intermittent gold bug—and this is one of those times. It’s a weird but understandable to support the case for a stronger dollar exchange rate as the same time we think we see gold going higher, too. They are both safe havens today.

It would be nice to see the famous inverse correlation take a hit to the jaw.

Bye For Now

Barbara Rockefeller - Forex Trading Reports

Pounds to US Dollars or Pounds to Euros - for the best exchange rates

visit IMS Foreign Exchange

Reserve Bank of Australia and Bank of England to Cut Interest Rates

Foreign Exchange Outlook TreasSec Paulson’s once-bright image is now more than a little tarnished after his plan gave the appearance of an arrogant power-grab, leaving Fed Chairman Bernanke as the sole standing hero. Bernanke speaks about the economy tomorrow and everyone is waiting breathlessly until we hear what he has to say about further federal government bailouts of everybody from General Motors (Detroit already got a little-noticed $25 billion in last week’s bailout) to the states (California Governor Schwarzenegger already applied on Friday). As noted by many observers, it’s a little silly that a state--with taxing authority--can’t peddle its bonds, or that companies with raw materials and inventory can’t get a loan at a sensible rate.
The total lack of trust is what is gumming up the works, and nowhere is the lack of trust worse than in our inability to price credit default swaps. As perpetual bear James Grant said on “60 Minutes” last night, we don’t even know the face value of the market, probably somewhere between $50-65 trillion. Credit default swaps were invented as insurance against default, but not named “insurance” because then the contracts would have to be regulated by the insurance regulators, not to mention being put on balance sheets. This is the market Warren Buffett said was pure poison a few years ago. It is also the market that put AIG on the block to the Feds. Solve the credit default swap problem, and a lot of other problems go away. We have no idea how this could be achieved and at a guess, neither does the Fed-yet.

The Reserve Bank of Australia meets tomorrow and the Bank of Enlgand meets on Thursday, with both banks forecast to cut interest rates by 50 bp. The Fed meets Oct 28-29 and the ECB next meets Nov 6, but chatter is going around that the central banks could coordinate rate cuts or at least all cut by the same amount. As noted above, monetary policy has exhausted its capability to goose markets, but never mind—rate cuts are good for confidence because it shows the governments are not dithering. In fact, Market News reports that the Swiss newspaper Sonntag reported yesterday (without naming sources but claiming they are “independent and credible”) that the Swiss National Bank will cut rates 25 bp by December at the latest, and the action could come as a coordinated move with the BoE and ECB.

Other policy options, in the US at least, include promises to bail out just about anybody who asks, something the cartoonists have already latched onto. The problem is not whether this is “socialism” or against US principles-of course it’s against US principles-but how to fund it. The only people with national savings (reserves) are in the Middle East and Asia. These countries lack developed capital markets (not to mention the rule of law, getting a bit battered these days), and so we imagine that Paulson and others have already been burning up the phone lines to these countries asking for a form of petro-dollar recycling.

This was a big deal in the late 1970’s and early 1980’s as it became clear that countries with newfound wealth had no real place to stash the cash. This time we have Emirates building islands in the sea shaped like palm trees and skyscrapers going up in Shanghai, so opportunities to invest domestically are not as scarce as thirty years ago-but still not big enough or safe enough for all the savings.

Why should these people rescue us now? After all, we brought in on ourselves with over-spending and stupid math-based con games.

Well, it may be touch-and-go, but in the end, the mercantilist argument will probably win. These countries, from Saudi Arabia to China, are export-based economies. No exports, no economy. No exports, no revenue to buy off restive populations who have a newfound hankering for everything from indoor plumbing to a Mercedes Benz in every driveway. They will rescue us because it is their political self-interest to do so. But these people are very, very smart and can see that the price can be forced to a very high level. Buffett has shown the way and established a new benchmark for big deals-10% dividend plus equity options. By the time this is over, over half the US economy can belong to the Middle East and
Far East. No wonder Western companies are wooing suitors in Japan so assiduously these days.
And the US is out ahead of the pack with initiatives to fix the situation.

Citibank got a court to open up on a Sunday to press its case for Wachovia over a competing bid from Wells Fargo. This is crass, but imagine a court opening on a Sunday in (say) France. In Europe, Trichet said it all-“We are not a political federation. We do not have a federal budget.”

So if a Middle East sheikh or Chinese agency wants to invest in “Europe,“ where do they send the check? This is an echo of Kissinger asking what telephone number to dial when he wants to negotiate with Europe. Well, perhaps this crisis today will nudge Europe toward greater federation, but we wouldn’t count on it.

Finally, where is G7 or G8? It was supposed to meet at the end of this week. The only validity the group can have going forward lies in expanding G8, which already includes Russia, to include China, and perhaps Brazil. We assume the British would never agree to inviting India, and the US may baulk at Brazil. Maybe we need a new kind of organization altogether, once that negotiates directly with OPEC, say. The Group has become increasingly toothless and irrelevant. If it is to survive, it must act this week. For that to be effective, Europe has to act as a single entity on the financial crisis, too. Until the rest of the world gets its act together, the US Dollar exchange rate will continue to be favored, even though it can hardly be said the US is doing a good job. In fact, it’s doing a terrible job, but it’s showing it can do something, even if it’s wrong. Action is better than paralysis, politically. We like the US dollar this week, and we also like the yen, especially in the old carry-trade crosses. The commodity currencies will be the hardest hit, since global recession hits commodities first. And we still await word from china about what it wants from all this.

There is no solution without China.

Bye for Now

Barbara Rockefeller - Forex Trading Reports

Best Euros Rates - Best Dollar Rates visit IMS Foreign Exchange

Oils next stop is sub-$100 and time to Buy US Dollars again.

Foreign Exchange Currency Outlook : It’s only normal to expect a pullback in a two-week rally. Prices simply do not move in a straight line indefinitely. We thought we saw it coming last week but it was only the slightest of burps, perhaps because the market is quite thin due to summer vacations. Is it true that the bigger the move, the bigger the correction? Yes, probably, but each one is slightly different and anyone who says it will be 23% or 38% or some other number is full of hot air. A lot depends on the reason for the correction.

Any old reason will do, whether it’s a good one that justifies a counter-trend move or not. This time, if it’s a temporary rise in the price of oil and other commodities, it will be taken seriously—but those markets have their own dynamics, too.

We are still trying to understand why oil fell so hard, and if the oil market traders think those are good reasons, the oil slide will continue.

We say that if oil breaches the most recent lowest low from May 1 of $110.30, the next stop is sub-$100 and the US dollar is golden.

The main economic consequence of falling oil is a reduction in inflation and inflation expectations.

That takes heat off the Fed but more importantly, it takes heat off the ECB and thus makes a cut in Q1 a more reasonable forecast. While normally we want to see the Fed in hawkish mode, it also serves to see the ECB is more dovish mode. Note also that falling inflation globally hastens expectations for rate cuts in Australia and the UK.

To think about the bigger picture, consider two pieces of data in one breath—last week it was reported that the eurozone economy contracts for the first time ever since the euro came into existence in 1999. On Friday, the Reuters/University of Michigan index of consumer confidence rose to 61.7 in early August from 61.2 in late July.

So, correction or not, we want to stay focused on the opportunities for the US dollar to hang on to its rally (instead of looking for reasons for it to end).

Bye for Now

Barbara Rockefeller

Buying US Dollars and want the best exchange rate

Contact IMS Foreign Exchange

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

Pound to US Dollars heading to 1.7500?

Pounds to US Dollar Outlook is very bleak for a Technical Analysis Outlook.

It has been forming a major downtrend for a long time, and now it has broken the neckline of a head and shoulders pattern on the weekly chart. If you like point-and-figure charting, the downtrend has been visible since February. Market News reports that analysts at CIBC, no slouches at chart-reading, see sterling to $1.75/$1.76 and

"an overshoot towards the market base at $1.7050 cannot be ruled out."

Bye for Now

Barbara Rockefeller

For the Best Pound to US Dollar Exchange Rate contact IMS Foreign Exchange