Waiting on the Data
"The GDP numbers to be released Wednesday will probably show that the U.S. economy continues to expand at a faster pace than either Europe or Japan. This will most likely be dollar positive…"
by Chris Gaffney In this issue… Waiting on the data Technical direction Rand's fall Chinese reserves
--- Advertisement --- Don't forget to make your 2004 IRA Contributions! IRA applications and contributions for 2004 must be postmarked by April 15, 2005 or they will not be eligible as 2004 contributions. Call today at 800.926.4922 and let the Investment Specialists from the World Markets Trading Desk arrange your 2004 contributions by the April 15 deadline. --------------------- And now…today's Pfennig! Waiting on the data… Good day. With most of Europe closed again today, we haven't had much movement in the currencies this weekend. Once traders return from their Easter holiday they will focus their attention on the GDP data to be released Wednesday, followed by Personal Consumption and the weekly jobs data on Thursday, and finally, the Jobs Jamboree on Friday. With all of this data to be released later this week, I don't look for major market movements today or tomorrow, just more of the same. The GDP numbers to be released Wednesday will probably show that the U.S. economy continues to expand at a faster pace than either Europe or Japan. This will most likely be dollar positive with economists and the media pointing out how the U.S. dollar should be higher given the accelerating growth in the United States. True, U.S. growth will come in higher than that of Europe and even Japan, but this growth comes on the back of record borrowing in both the public and private sectors. But the markets aren't focusing on the deficits right now; their attention has been moved to the FOMC and speculation that they will increase rates by .50% at their next meeting. The market's focus could return to the deficits on Thursday with Personal Income and Spending to be released. But I will bet that all of the attention will focus on the Jobs data to be released Friday and the markets will largely ignore this data on Thursday unless it is just off the wall bad. Traders will be looking at the monthly employment data to try and gauge wage inflation. Greenspan has stated that inflation will remain subdued until we see pricing pressures on the employment front. The markets will, therefore, be looking for an improvement in the monthly jobs data to support their opinion that the FOMC will accelerate interest rate increases. I just don't believe we will see strong enough data on Friday to support this dollar rally. Technical indicators are again suggesting that the dollar is poised to fall. Its 10-day relative strength index against the euro feel to 23.75 yesterday, and against the yen was at 76.96. The index is a gauge of momentum in a given period, and a level above 70, or below 30, suggests a change in direction. Now, I am not your last choice for technical analysis of the markets, but people who I read and seem to have a handle on this side of the markets say the charts and graphs show the dollar will reverse last weeks rally and start to trend down again. The high flying South African Rand, the best performing currency vs. the U.S. dollar over the last three years, continued its decline this year as the price of gold also fell. Gold, which accounts for 13 percent of South Africa's exports, dropped for its third day in four ending its worst performing week since January. The volatile rand has now lost over nine percent of its value since the beginning of the year, making it the worst performer of the currencies we trade. We have constantly reminded investors of the risks associated with this currency, so hopefully this volatility hasn't caught anyone off guard. But the rand is about as consistent as the St. Louis weather, so don't be surprised if it reverses course. As long as commodity markets continue to stay strong, and if the manipulated markets which price gold allow the precious metal to increase, look for the South African rand to strengthen. China's foreign currency reserves rose by $32.7 billion to reach $642.6 billion in the first two months of this year, China Business News reported. Growth slowed compared with the fourth quarter of last year, when the reserves grew by almost $30 billion each month, sad the newspaper, a publication of the Shanghai government. We will continue to watch these reserves, as their investment could determine the direction of currency markets over the next few years. Currently, China continues to invest a majority of these reserves in the U.S. Treasury markets. But, as I pointed out last week in the Pfennig, there have been many stories and rumors that China will look to diversify these reserve holdings by buying a basket of currencies including the euro and yen. These purchases would allow China to release the U.S. dollar peg and float the currency vs. this basket. We could see this occur sometime this year and if / when it does, it would have a negative impact on the dollar. Currencies today: A$ .7710, kiwi .7096 C$ .8208, euro 1.2932, sterling 1.8647, Swiss .8320, rand 6.25, krone 6.346, forint 191.54, zloty 3.20, koruna 23.33, yen 106.81, baht 39.17, sing 1.6502, pesos 11.32, and gold… $424.99 That's it for today, sorry for the short report but not much is happening in these thin holiday markets. The Final Four comes to St. Louis this week, so things will be jumpin' around here. Have a great start to your week! |
