Key News
* EU Says Bank Losses Could Be 400 Billion Euros in Deeper Slump (Bloomberg)
* Banks With 20% Unpaid Loans at 18-Year High Amid Recovery Doubt (Bloomberg)
* U.S. Economy: Job Losses Exceed Forecast, Imperiling Recovery (Bloomberg)
* European officials applaud US strong dollar stance (Reuters)
The Event Agenda
Afternoon Run-Down
I pointed out the key reversal (outside day) in stocks last week following a more cautious and dovish Fed statement. And that, so far, has marked a top. Stocks have continued to roll over. Following cues from the slippery slide in stocks yesterday, the dollar rallied nicely producing a bearish outside range in the Australian dollar—the currency markets favorite vehicle of risk taking.
Comments on strong global currencies and the weakness of the dollar have become more frequent and more direct. That, and a falling stock market, laid the groundwork for a stronger dollar and weaker risk environment going into this morning’s unemployment data. Because it’s widely expected that unemployment is going to be high well into to 2010, this data should have been inconsequential and the market response proved just that. After weaker employment data, the markets made sharp rebounds from the weakness yesterday and overnight—led by a strong surge in the euro.
But going into the close, the euro is only up small for the day and finished the week down ¾ of a percent. For those that believe the rally in stocks and sell off in the dollar this morning was a dollar/inflation story, the treasury continues to lack confirmation for that theme. Ten year treasuries finished up a full point for the week—yields lower.
The G-7 meets this weekend. Currencies are going to be a topic discussed, according to the EU Economic and Monetary Affairs Commissioner.
Even though the G-20 made a statement that the torch of power has been passed, with growing chatter of discontent with strong currencies, I wouldn’t want to go home short dollars.
Here’s my screenshot going into the close…
Key Charts
We’ve now had 21 consecutive months of job losses…
Very nice technical reversal signal (outside range) in the Australian dollar after a 41% march higher in seven months. Even following the sharp rebound in currencies this morning, the Aussie remained weak finishing the biggest loser in currencies…
For an indication on the size of the short dollar position, the market has one of the biggest Swiss franc long positions in seventeen years. The last time the market was overly long, the Swiss franc reversed… falling 17% against the dollar over the next 12 months…
The IMF released data on the composition of second quarter global foreign exchange reserves. The dollar’s share fell to 62.8%, slightly below its share this time last year.
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