Greenback Nowhere But Down Long Term… Deal With It

Well… Here we are this morning, the currencies have basically remained stalled, with only the “higher yielders” making any headway, albeit small headway.

The non-dollar currencies saw a bit of selling yesterday morning, after I signed off, but have rebounded a bit in the overnight markets. There’s a feeling among us here on the trading desk that we’re about to break out here… It’s either going to be a break out to the high side or the low side… But I doubt that we’re going to remain in these tight ranges for too much longer. But, that’s just my opinion, of course. I could be wrong!

The majority of the pundits out there in newsletter land are saying that they believe the direction will favor the dollar… I wouldn’t argue with them too much as long as they put the caveat in there that it’s just for the short-term, and that it’s not a reversal of the weak dollar trend. I wouldn’t argue with the people who think the non-dollar currencies will go back to taking liberties with the dollar once again, for the fundamentals would point to that in the long run.

The thing I think most pundits don’t understand, and therefore that their readers don’t understand, is that that the dollar has no other direction to go in the long-run but down. All this stuff in between is “noise”… And nothing more than a “circuit breaker” for the dollar.

The euro (EUR) has had to take on a bad piece of data this morning, as the German Business Confidence, as measured by the think tank, IFO fell for the first time in 11 months… I had a reader from Germany send me a note the other day, and tell me that it’s all seasonal, and that they’ve had the coldest winter in 14 years… They truly expect for this to all turn around once spring gets here… I certainly wouldn’t mind seeing that happen soon myself!

German Chancellor Angela Merkel, who I quoted last week giving the financial institutions an earful for helping Greece avoid the Maastricht criteria to join the euro, was back on the podium last night… This time she’s slamming the market speculation against the euro, saying that “financial institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere.” Way to Go Angela!

This is just what the euro needs, folks… A champion! Hey! It worked for the dollar back in 1995, when Robert Rubin became the dollar’s champion… And it could certainly work here… Although, I doubt that Angela Merkel has the same pipeline to the Treasury and Central Bank like Rubin supposedly did.

I looked up yesterday from performing my “daily job” and noticed that gold, which had rallied overnight, had given up that gain, and was now in the red. I tried to find a story that would explain this move, but was unable to locate one. The only thing I could find was a stupid story from the World Gold Council who wrote that China isn’t a “realistic candidate” to buy gold bullion from the IMF.

Hmmm… They didn’t say why they thought that… And that always bugs me to no end… To come out with such a bold statement and not say why they thought that way… Hmmm!

Now… Here’s some comforting news… Remember Kenneth Rogoff, the former head of the IMF? Well, he’s now at Harvard… And claims to have predicted the failure of the big US banks in 2008. Now, he’s predicting that we’ll see a “bunch of sovereign defaults, in a few years.” UGH! Now that’s not something you want to snuggle up with on a cold day, with a hot drink in one hand and a good book in the other!

To offset that… I’m hearing rumblings of a very good budget announcement from Canada next week… It seems that right now the thinking, or the rumors, are that Finance Minister Flaherty won’t include any new tax or spending measures in his budget, and offering a plan to cut deficits by reducing the rate of spending growth… Now… That’s the stuff that good economies are made of!

Oh! And look at that… The Canadian dollar/loonie (CAD) is cheaper today than yesterday… Wink, wink…

One could easily say the same about gold, which is also cheaper today than yesterday…

Well… The thought that’s going around the markets today is that the Fed is going to keep rates unchanged for some time, again… A “change of heart” if you will! Recall, last week, the markets were all lady ga-ga about the quarter-point raise in the discount rate… And traders were lining up to buy dollars on the thought that the dollar would soon boost a higher interest rate… But, now that the dust has settled… They don’t think that any longer! UGH! These guys give me a rash!

It’s this way one week and the other way the next week. It’s risk on one day and risk off the next day… Could we please have a direction and stick with it? Please?

When I began writing this morning, I said the “higher yielding” currencies were a bit stronger… Well, that’s gone to the side of the road, now… And they’ve lost that “edge” in keeping with the winter Olympics!

Today, the data cupboard has the S&P/CaseShiller Home Price Index for December… And while it’s supposed to fall, the fall will not be as pronounced and bad as previous months… But keep in mind here the explanation I gave you yesterday about comparing data, and so on… When you comparing new data to a set of awful data, the numbers get a bit skewed…

The consumer confidence for this month will print this morning too. Consumer confidence is expected to weaken albeit just a smidgen… I know that consumer confidence is very closely aligned with how the stock market does… Stocks haven’t done great in the past month, so that explains the smidgen decline.

To recap… The currencies are trading in a very tight range, and can’t seem to break out of these ranges… The data won’t really get us out of those ranges today… And the thought that the Fed is going to raise rates soon is beginning to dissipate.

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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