Greenback Strength on Greek Tragedy

The euro (EUR) has led the non-dollar currencies down versus the dollar overnight. After spending three days this week hovering back and forth over and under the 1.45 handle, the euro finally succumbed to some selling.

The selling is being blamed on the Greece story once again… I mean, come on! Haven’t we already been there, done that, and bought the T-Shirt, with Greece? But here we are, this morning, looking at the euro trading below 1.44… And all the other currencies have backed off versus the dollar… Even the Swiss franc (CHF), and Canadian dollar/loonie (CAD), have backed off overnight. And of course, in keeping with the trading theme of 2009, the only currency to rally with the dollar is the Japanese yen (JPY)!

So… Yesterday, the European Central Bank (ECB) kept rates unchanged, as expected. But then in the press conference after the meeting, ECB President Trichet, threw what the markets believed to be a cat among the pigeons when he said something about Greece being responsible for their debts… This led traders to believe that Greece won’t be able to pawn off their bad bonds on the ECB, as was done here in the US when US banks dropped off their toxic waste bonds at the Fed.

Once again, I’m going to go out on the edge of a cliff here, and shout as loud as I can in hopes that someone hears me… Greece is nothing compared to California! California is the world’s 8th largest economy (it’s in the top ten, but floats around, so for today, I’m going to say 8th largest!) Greece? It probably isn’t even in the top 50! So… Why does the euro get beaten like a rented mule and the dollar skips-to-my-Lou around California’s problems?

I have to tell you that Trichet made two comments that had me chuckling… First was this… “The stories going around about countries leaving the euro are absurd…” And, “I don’t comment on absurd hypotheses”…

OK, back to the Canadian dollar/loonie for a minute… Other than last night’s performance, the loonie has had a very strong performance this week, as it heads toward parity versus the green/peachback. I just put the monthly newsletter, The Review & Focus to bed for February, and Mike Meyer did some great research on Canada, and the prospects of a stronger loonie…

It’s not just the currencies that have backed-off versus the dollar overnight… Gold has given back $10! UGH!

I want to talk briefly about something I said yesterday regarding gold… When I said that I laughed at a comment on the newswire that called for gold at $5,000, I did not mean that I was laughing at the thought that gold could get to $5,000… I was trying to make the point that pundits are calling this, that, and the other thing for gold… That’s all. Shoot Rudy, I own gold; I would be one happy camper if gold reached half of that call of $5,000! But again, I must point out two things: 1. The gold price manipulators would probably be dead if gold were to reach $5,000, and 2. The state of the economy would be in shambles…

OK… Like I said, the euro hovered around 1.45 all day yesterday, probing higher and then selling off to go lower. Even the awful color of the US retail sales data for December didn’t move the euro higher, and thus all the other currencies.

US retail sales for December were a negative 0.3%! For December? Yes, for December! The unexpected fall in retail sales points to 1. A weak Christmas shopping season, and 2. That consumers were pulling up on the reins of spending. The lofty November figure of +1.3% was revised upward to +1.8%, so that revision probably shook some of the “bad data label” off the December figure… But still… December! We had a negative retail sales figure for December! And people still want to talk about the recession being over? Let’s see… The latest reports show that December lost 85,000 jobs and had a negative retail sales figure… Sure doesn’t sound like the recession ended in December!

OH! And do you wanna know how the major media spun this story? They didn’t mention the negative sales figure for December, opting instead to talk about how December’s sales were 1.1% higher than in 2008! Geez Louise, could I get some serenity now?

Oh! And the Weekly Initial Jobless Claims added 11,000 more claims last week, versus the previous week, to 444,000…

The data cupboard is chock-full-o-data today… First we’ll see the “stupid” CPI data for December… Although this data is so manipulated, I think we’ll see that CPI year-on-year is up 2.8%. That’s 2.8% consumer inflation, which, while not the soaring inflation I still expect, is nothing to laugh about. And… I’m absolutely positive that if we took out the manipulations, we would see inflation around 7%…

We’ll also see two of my fave data prints… Industrial Production, and Capacity Utilization… Both for December… And both are expected to show gains in percentage use. Capacity Utilization is one of the few data prints that is forward looking, and here, the utilization is expected to be 71.8%, up from last month’s 71.3%… Still a long way from the go-go days of 10 years ago, when Capacity Utilization was over 80%!

And the U. of Michigan Consumer Confidence index finishes the day of data, and is expected to show an improved confidence of consumers… Again… Why? One in 45 homes are in default, unemployment is 17%, we’ve just suffered through a lost decade in the stock market, the recession hangs on, and we’re still at war… Oh, the list of reasons to not be confident is as long as Rapunzel’s hair, but I don’t want to get gloomy on what can still be a Fantastico Friday!

There was a story in BusinessWeek that said that the Obama administration was looking into a requirement for all 401Ks and IRAs that would take a portion of the funds, and put them into an annuity, to provide a steady stream of income for the person.

That’s the same lie that they told about social security!

I could go on a rampage here and list the things that I think the government would use those funds for… But I’ll leave that to your imagination. But I can tell you this… Don’t ever expect to get back a dollar that you give to the government to “hold for you”…

The head of the Chinese think-tank, DRC, Long Gouqiang, acknowledged that the renminbi (CNY) is undervalued, but warned that a big, sudden renminbi rise would hit the economy hard. He acknowledged there is expectation abroad for a renminbi rise, but now is not the time. Hmmm… Same-old-same-old, with China, folks… They know their currency is undervalued, but it does not interest them at all to do anything about it… However, I’m of the opinion that IF the global economy continues to grow, and we see some semblance of order in trade, that the Chinese would get back to allowing the renminbi to gain versus the dollar like they did when the currency gained more than 10% in 2007.

Oh, and one more thing that I saw in The Washington Post, this morning… The Congressional Budget Office (CBO) issued a report yesterday saying that without any major thrust by the government, unemployment in the US would remain above 8% for the next two years… Given the CBO’s track record for forecasting, I would probably add a percentage point or more to their number!

To recap… The “Greek story” was back on the burners yesterday, causing a sell off of the euro to below 1.44, overnight. The euro’s losses dragged down the other currencies versus the dollar, except Japanese yen. Retail sales for December were negative, and we have a ton of data to deal with today…

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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