Key News
* Yen Hurts Japan’s Exporters (WSJ)
* Obama to hit China with tough tariff on tires (MarketWatch)
* Russia Cuts Benchmark Rate to 10.5% to Buoy Recovery (Bloomberg)
*U.K. Banks to Post $215 Billion Losses, Moody’s Says (Bloomberg)
*Economist warns of double-dip recession (FT.com)
The Event Agenda
The Morning Run-Down
Gold is dictating where the dollar is going in the near term. With the aggressive ascent to the $1,000 mark, the perception of reserve diversification from global central banks has the dollar on weaker footing. This move higher in gold, lower in the dollar has sent some key currencies rallying to new 2009 highs and has sent the dollar index through its key support level to new 2009 lows. The next key level in the dollar index is the all time low reached last year of 70.6—still 8% away.
Today the dollar is mixed. Gold traded below 1000 going into the NY session which gave the dollar a boost this morning. Also, the news of protectionist activity between the U.S. and China has the dollar a bit better bid as risk aversion creeps higher.
All that said intervention talk is heating up too. I wrote a piece in moneyandmarkets.com on Saturday (“Strong Currencies — Not Welcome”) pointing out the threat that the rapid rise in currencies are presenting to fragile recoveries.
The WSJ ran a couple of articles in a similar vein this morning on the growing problems that euro strength and yen strength are causing for the Eurozone and Japanese economies. And the South Korean won and Indonesian rupiah are falling today on speculation the central banks will intervene.
The Canadian dollar is one currency that has been in the crosshairs of intervention talk. The loonie is outpacing most currencies to the downside this morning. The Canadian Finance Minister said he wants all stimulus money spent, pushing the growing budget further into deficit territory—CAD negative.
Regarding the prospective global economic recovery, here’s some interesting commentary from the former Bank of International Settlements Chief Economist at a conference in Hong Kong…
Ø “Are we going into a W shaped recession? Almost certainly”
Ø “Are we going into an L? I would not be in the slightest bit surprised”
Ø “The only thing that would really surprise me is a rapid and sustainable recovery from the position we’re in”
The markets are pricing in his last scenario… the least likely scenario.
We have the FOMC and G-20 next week. The cautious tone should continue for a low interest rate environment for some time.
Here’s a look at some key charts…
Key Charts
Gold has challenged the $1,000 level twice before. In March of 2008 gold had two closes just marginally above $1,000 and then proceeded to down to the 900 area in just three days. In February of this year, gold made an intraday surge above $1,000 only to close below and subsequently fall to $900 in eight days.
So the $1,000 mark is critical to watch in gold. If it can sustain this level, the dollar will likely get punished. If it can’t, the propensity for a sharp fall is high, considering the history. And that would likely result in a sharp snap back in the dollar.
The Aussie dollar has broken to new 2009 highs but runs into a line of resistance here… the break-comeback of the trend break that took place last year this time.
After rising 27% from its lows last year, the dollar index has now fallen 14% from its “crisis highs”…
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