Where is the Year Going?
"You know how the 'contrarians' were telling you to sell euros because the market was too long? Well, I'm saying now to sell dollars because the market is too long!"
by Chuck Butler In This Issue… - Where is the year going?
- A big dollar rally…
- No fundamental change for the dollar…
- I've got your back!
--- Advertisement--- Looking for the nation's best checking account? Everbank's FreeNet Checking Account at www.everbank.com is a Forbes "Best of the Web" pick for four consecutive years and ranked #1 by Bankrate.com! --------------------- And now…today's Pfennig! No Fundamental Change For The Dollar! Good day. Well, a very nice trip to Dallas this past weekend, great hospitality, and a great audience! Now it's time for me to hunker down in St. Louis for a while! This will be a short week, as the markets will basically shut down on Friday ahead of the Memorial Day three-day weekend! WOW, can you believe it's already Memorial Day? Bad news on the currency front on Friday. I singed off with the thought that there wouldn't be much action, only to have that shoved in my face big time! The dollar rallied across the board on speculation, hedge fund, black box and real money dollar buying. But it had to be mostly black box trading as the move was swift and in one direction, which was down for the euro. UGH! However, if you are with me on the thought I gave you from Las Vegas, this is still the bear market 8% rally for the dollar. I'm told by the technical charts people that the end comes at 1.2460. I'm somewhat surprised, though, that the Central Banks didn't step in to smooth out the trading on Friday. I know that it's tough to batten down the hatches and ride this out, but that's what I'm going to do… I was anxious to get my hands on the IMM Futures reports that come out each Friday. So, from my hotel room in big "D," I found it and the report told me exactly what I imagined it would: That the market is long so many dollars right now that this dollar rally has got to end soon. The net long dollar position against major currencies reached its most extreme level since 1999. The positions in every individual major currency are at levels at which the dollar corrected lower, in the past. You know how the "contrarians" were telling you to sell euros because the market was too long? Well, I'm saying now to sell dollars because the market is too long! For new readers, the thought pattern here is that too many longs create selling opportunities, and then there's a rush to get to the door and take a profit. When that happens, a currency can come tumbling down very quickly, and this is one of those times that it looks like that could happen for the dollar… Having said that, though…I suspect the next week will be very tough for the euro, given the French and Netherlands' vote on the European Union constitution. Both look as though it will be a "no" vote, and while I think that this has already been priced into the euro, it will weigh heavily at first. But as I tell the people that have listened to me in Las Vegas and Dallas: Unless the euro has changed its colors and lost its position as an international currency and rival to the U.S. dollar as a reserve currency, then this "no vote" shouldn't bring the euro down for too long. I also told the audience in big "D" this past weekend that the dollar's fundamental position has not improved merely because the Fed has gone on a steady tightening cycle, and other Central Banks have not been able to follow suit. All that's changed for the dollar in my mind is the position of hedge funds, who scrambled to cover remaining dollar shorts, and created a lot of "black box" trades… (computer generated trades that automatically go off. The stock market has "circuit breakers" to prevent a run on the stock market, there's no such "circuit breakers" in currencies) No, the fundamental position of the dollar remains the same. It requires over $2 billion dollars a day in foreign investment to finance the Current Account Deficit, and in March it fell way short of doing so. If that situation gets worse, there will be one of two things happen to attract foreigners to our assets. 1. A rise in interest rates… I mean a big rise! Or 2. a weakening of the dollar to give the buyers a cheaper clearing price of the asset. So, ask yourself this question: Do I believe that the Fed is going to aggressively begin to hike interest rates? Of course, my answer to that question is "no," not unless Big Al wants to bring about a shutdown of the U.S. economy, and stock market. So, no use in going into each currency at this point. They are all down sitting on the porch with the big dog…the euro…except one currency that is moving higher vs. the dollar and that's the Mexican peso, which has really caught a flyer lately. But you talk about a currency that's vulnerable to a U.S. slowdown, that's the peso…and I see nothing but hard times ahead for the U.S. economy, so I would be very careful with pesos. That's like playing with fire in my opinion, which your mother always told you not to do! There's not a lot in the data cupboard this week, except for Durable Goods tomorrow and a revision of 1st QTR GDP, which is now expected to tick upward after the last revision's downward move! Friday we'll get two of my faves… Personal Income and Spending. We, as a nation of consumers, have outspent what we've made, income wise, for the past three years… And that by itself scares the bejeebers out of me! Currencies today: A$ .7580, kiwi .7095, C$ .7030, euro 1.2555, sterling 1.8305, Swiss .8125, rand 6.57, krone 6.4680, forint 201.47, zloty 3.3310, koruna 24.21, yen 107.75, baht 40.00, sing 1.66, pesos 10.9550, and gold… $418.20 That's it for today. I had to laugh this morning when I arrived at work…on my desk there was a postcard with a picture of Big Al, and these words inscribed on it: "Don't worry, I've got your back!" HAHAHAHA! That was hilarious! Thanks to the Pfennig reader that sent that along to me! Have a great Monday and week! |
