Key News
* Britain facing biggest deficit in Western world, warns OECD (Telegraph)
*Roth Signals New Swiss ‘Aggressiveness’ in Franc Intervention (Bloomberg)
*BOE King: Pound Weakness To Help Mitigate Poor Global Outlook (Bloomberg)
*Ship orders set to add to capacity glut (FT)
The Event Agenda
The Morning Run-Down
The 2-day Fed meeting resulted in a fairly lackluster event with one exception. The Fed’s statement on inflation was a bit different. And the bond market interpreted the message as slightly more hawkish on inflation. I would not be surprised, however, to see the move in interest rates yesterday reversed. Below are the excerpts on the reference to price pressures in yesterday’s statement compared to the statement made after the last Fed meeting…far from a clear move beyond deflation worries.
Currency markets have been very choppy over the course of the last week. Critical trend breaks in stocks, commodities and currencies took place last week implying an aversion to risk is coming back into play—and these key breaks still hold. Though, particularly in the pound, sharp sell-offs in currencies have been met with equally strong buying over the past several days, creating a whipsaw back and forth. Approaching the Fed announcement, however, the dollar started its move higher and continued its move higher following the announcement. Bolstering this trajectory, yesterday the Swiss National Bank intervened selling Swiss francs against the euro. This boosted the dollar nearly 4% higher against the Swissie.
Key Charts
The pound has lagged the trend break that has taken place in stocks, commodities and other major currencies and is now testing this trendline as well. The challenge of this trendline will be key to watch.
And USDJPY looks to have made a false break of this wedge formation gaining with general dollar strength and helped along earlier today from dollar supportive comments from the Japanese Finance Minister. This formation implies that USDJPY is preparing for a breakout or breakdown.
{ 2 comments… read them below or add one }
So what is the future of the dollar? Is it over-valued and becoming weaker due to deficit spending? What causes the dollar to strengthen and go up from day to day? I noticed each day that the dollar’s value goes up compared to other currency pairs and the price of gold is going down. Why do some advisors think the dollar will strengthen and go up?
I ask these questions to get the view of others so we can determine the direction of gold and other commodities, such as food and other metals. The P/E ratios of the S&P 500 are the highest on record yet the stock market continues to climb. My belief is the US government is controlling treasury prices and yields and investors from other countries are investing in US Stocks driving up stock prices.
It certainly looks like the bear market bounce is heading for a course change in July which will affect the major currencies. However I’m wondering about the Brazilian real. Because of China becoming a major customer and a relatively sane central bank, could the real be the out-performance exception against other emerging markets currencies? Could it perform well against the dollar?