The Currencies Mini-Rally Continues

On Friday, the currencies kept with their mini-rebound versus the dollar – for the most part – as the Big Dog, euro (EUR) crept higher and higher, but in tiny, baby steps for sure! It’s as if traders want to take the euro higher, and sell the dollar, but they just aren’t sure right now…

Stocks got hammered on Friday in reaction to the president’s proposed ban on proprietary trading in banks. You know, it occurred to me that the government, the media, and now even I have gotten in the habit of just saying “banks”… When what we mean here is investment banks, like the Goldmans and the Morgan Stanley… And yes it does include “real” banks, but for the most part they are the ones that do more on the investment side than they do on the deposit side.

I didn’t like seeing the stocks get hammered on Friday, although, I’ve been calling for a stock market correction for about five months now. The thing I did enjoy seeing was the fact that stocks were getting sold, and the currencies remained well bid versus the dollar… Another chink in the armor for risk assets getting all thrown in the barrel together? I would like to say yes!

And… That could be a good sign, for I’m of the belief that stocks have further room to correct… But then, I’m not even your last pick on the team for stock jockeys, folks.

The price of oil has fallen significantly in the past week, and this morning it’s sitting there with a $74 handle… Very interesting… Good for us, and our inflation outlook… But bad for the petrol-currencies of Canada (CAD), UK (GBP), Norway (NOK), Mexico (MXN) and Russia (RUB).

But come on! Do we really believe that oil prices are going to continue to go downward? This isn’t possible, in my mind… Well, of course it’s possible… Just not probable.

Speaking of Canada… On Friday it was announced that Canadian November retail sales fell 0.3% which was slightly greater than the 0.2% drop expected going into the report. So, the loonie has had to deal with that and a lower oil price… It wasn’t a good week for the loonie…

Another currency that had a rough go of it last week, was the Brazilian real (BRL)… The Brazilian Sovereign Wealth Fund (SWF) has really hit the ground running in their attempt to weaken the real… They have done so by selling reals and buying dollars by the truckload in the past two weeks. One has to wonder, just how deep their pockets are, don’t you think? For… I truly believe that investors are just champing at the bit to buy at these cheaper levels, given the forecast, which I’ve talked about before here, for higher interest rates in Brazil this year.

So… It’s a cat and mouse game between the SWF and investors/traders/others, who want to buy reals, but not knowing about just how deep the SWF’s pockets are…

I see that the Bloomie is announcing that they will show a debate today on Bloomberg TV, regarding the question, “Is California the nation’s first failed state?” I don’t know what there is to debate… Yes, it is! But it won’t be the only one!

The data cupboard was empty on Friday, and will only yield data on Existing Home Sales today… But tomorrow is the beginning of one of those two-day FOMC meetings, when all the board games come out, and the Fed Heads spend the days playing games like Candy Land and Battleship… But their favorite game, of course, is Monopoly… They just love playing with Monopoly money… So much so, that they carry it over to real life with the dollar! HA!

Gold dipped below $1,100 on Friday, albeit briefly, with $1,100 looking like the line in the sand that gold traders have drawn to indicate they do not want to cross that line… Of course that doesn’t mean a hill of beans, should the selling continue… The selling has all been tied to the call for higher interest rates here in the US. Apparently, these guys calling for higher interest rates haven’t been listening to the Fed Heads as they hit the speaking circuit… They have all sung from the same song sheet on this one folks, and they have all said the same thing… That interest rates will remain at current levels for some time to come.

We’ll get more of this when the Fed Chairman, Big Ben, speaks at the end of the two-day meeting tomorrow afternoon.

A reader dropped me a line on Friday, and said that he was confused as to where I was getting my 10-year Treasury yield, which I had posted at 3.38% for a couple of days… I then went to my “live trading screens” and saw that the 10-year yield was more like 3.65%! UGH! Then I realized that I had been writing from home, and I don’t have “live trading screens” at home… Apparently, the “source” I use to get this data, hasn’t been updated in a week! UGH! I went to see what it was showing this morning, and it’s still at 3.38%… So, I’ll have to deep six that source and find another… Sorry for the confusion… I’ll be back in the saddle tomorrow morning, as my beautiful bride returns home this evening, and my morning, duties with Alex will end.

On Friday, I criticized the government for what they are trying to pull off, without any opinion as to how I would fix things… And you know that I would have an opinion on how things should work!

So… I would have regulated the financial institutions and lenders more… In other words, AUDIT THEM TRUTHFULLY, rather than Bernie Madoff-style audits!

These regulators have the power to make a financial institution change the way they do things, or put in more circuit breakers… They also would have stopped lenders from the lending practices that were so much a part of this debacle… I have been in the investment divisions of banks since 1979… I KNOW that they have the power to regulate using current laws!

You don’t need to stop these people from doing business, for there will be unintentional consequences… You just need to make them cross the “T’s” and dot the “i’s”!

And… You certainly don’t need to punish/tax these businesses to generate money for the government to spend! That’s right! If you give the government money, they are not going to pay down their deficit, they’ll just find new things to spend it on, making our situation worse, for you know that they’ll spend more than they take in!

Then there was this… A reader sent me a link to a Panama newspaper the other day, and in the paper it was reported that 17% less freight is going through the Panama Canal these days… In December alone, the fall was 9% from the previous December… And here’s a telling figure… in 2009 there was an increase of 13.9% of empty containers compared to 2008. Empty containers going through the Panama Canal… Interesting, don’t you think?

To recap… The currencies have added to their mini-rally versus the dollar overnight, and looks as though traders want to take them higher versus the dollar, but just aren’t sure yet… Oil has fallen by quite a bit in the past week, hurting the petrol currencies. And Brazil’s Sovereign Wealth Fund has hit the real’s value versus the dollar, very hard in the past two week, causing the real to fall quite a bit versus the dollar. Just how deep the Wealth Funds’ pockets are, is the question now.

About Chuck Butler 105 Articles

Affiliation: EverBank

Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter.

With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News, World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune.

Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.

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