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European Currencies Rally, Dollar-Bloc Heavy

Marc To Market's picture




 

This week's pattern remains
intact.  The US dollar continues to trend lower against the European
currencies, but is firmer within the dollar-bloc and against the yen. 
Spanish and Italian bond yields are lower, while the long-end of the
Japanese curve is heavy.  Equity markets are finishing the year with a
firm note, with board gains in Asian, with the notable exception of
Shanghai and Jakarta, and in Europe, with the exception of Stockholm. 

 

The
euro is at 7-month highs today, pushing toward $1.3300. The next target
is near $1.3385.    Sterling has been bid to near the year's high set
in late September just above $1.6300. There is little chart resistance
until closer to $1.6500.   The dollar's slide against the Swiss franc
has extended to CHF0.91 and appears headed for CHF0.9000.

 

The
dollar-bloc is not participating in this move against the greenback. 
This week, for example, the New Zealand dollar has fallen as almost as
much as the yen (1.03% and 1.08% respectively).  The Australian and
Canadian dollars are off 0.04% and 0.57% respectively.  

 

There are a few macro-developments to note:

 

1. 
Japan:  The BOJ meeting concludes tomorrow.  Abe continues to press his
case.  There is more talk of open-ended asset purchases, like the Fed
and ECB, but what does it mean in practice?  It does not mean
QE-infinity as some critics claim.  It seems to mean no pre-determined
limit.  The Fed is clearly specifying the amount it intends to purchase,
which in 2013 seems to be roughly the equivalent of the budget
deficit.  The ECB has not bought a single bond under its
open-end commitment.  It imposed its own limits in terms of
duration.   The BOJ has extended its asset purchase program several
times this year.  It shows a willingness to continue to do so.  It seems
like only a slight difference, largely in terms of presentation, of an
open-ended commitment.  

 

2. 
The German IFO survey was firmer than expected, with the headline up to
102.4 from 101.4 in November and expectations for an increase to 102. 
It was driven by a rise to 7-month highs in the expectations component. 
However, the assessment of current conditions actually fell to 2.5 year
lows.   

 

3. 
Minutes from the BOE's MPC meeting earlier this month did not appear to
contain surprises.  By an 8-1 vote, it did not renew its gilt purchase
scheme and for nearly four years (45 months), it kept the base rate
steady.  The recent uptick in inflation and some administered price
increases likely to filter through into early next year, the MPC may be
reluctant to purchase more gilts initially.  A six month review of the
Funding for Lending Scheme is due in January.  The preliminary evidence
seems to suggest it has been better more mortgage lending than corporate
lending. 

 

4. 
Italian politics remains unsettled.  After pulling support for the
technocrat government, forcing election 6-8 weeks earlier than they
otherwise would have been, Berlusconi  now is urging a delay in the
election, seeking more time to campaign.  His party is playing for time
in parliament as well.  It means that the 2013 budget is unlikely to be
passed this week, which had been expected.   The election now looks
likely for Feb 24, but it could be pushed into March. 

 

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Wed, 12/19/2012 - 10:40 | 3078382 orangegeek
orangegeek's picture

Push the Euro currencies up and it drives the US Dollar down.  Why?  US Dollar down pushes US markets up.

 

Wait until Q4 reporting in January.

 

http://bullandbearmash.com/chart/sp500-weekly-closes-channel-support/

 

SP500 weekly top in October is going to get retested, but after that, look out below!!

Wed, 12/19/2012 - 08:52 | 3077958 eddiebe
eddiebe's picture

It takes a lot of $ and its equivalents to keep gold and oil and other commodities suppressed while buying US paper at the same time and keeping the war games going.

Keeping the focus off major US $ problems and focusing elsewhere is on break briefly to focus on the 'fiscal cliff', which is driving the $ down a bit. That of course is just a slight of hand to keep the focus off the real problems the whole fiat complex is facing world wide.

They are pretending to fight over a measly 1.3 trillion cut over 10 years while running substancially more than that in trade deficits alone every year. No wonder the US dollar is showing weakness. What amazes me is that it hasn't broken down into the 60's yet.

Wed, 12/19/2012 - 09:54 | 3078155 LawsofPhysics
LawsofPhysics's picture

Yes, but it isn't the fiat charade and lack of real consequences for bad behavior that are the only problems.  One might also say "That of course is just a slight of hand to keep the focus off the real problems the whole energy complex is facing world wide."

The U.S. military is far and away the largest end user of energy.  Hhhmmm, how might we end such a huge mis-allocation and mal-investment of capital and resources.  I wonder....

Wed, 12/19/2012 - 08:15 | 3077936 David99
David99's picture

Don't buy any stock at these high levels as Casino will crash any time. FED is the biggest criminal on this planet.ZH is only doing good job and reporting correctly. Tyler is a real true person though I have never met him. FED+BOE+ECB+BOJ are the biggest manipulators and JPM +GS +20PD's act on their behalf in this Ponzi Casino. It is all rigged Ponzi Casino. JPM & GS do maximum manipulations from London as no regulators are looking what is going on daily. London is the best place to manipulate Ponzi Casino as no regulators as they are watching porno. Manipulations of highest order without any regulations as every one has been purchased and regulators watching porno. In last 10 trading days, Rio Tinto manipulated by +25% gain and regulators watching porno. JPM doing it. It is just Casino and nothing else. Regulators are watching porno, don't know how Rio Tinto is manipulating daily. On LSE, there is no checks and balances and maximum manipulations daily by Rio Tinto. The market is Casino and the biggest manipulated stock is Rio Tinto and JPM is pulling up daily and no regulations for Rio Tinto in London

Wed, 12/19/2012 - 07:55 | 3077910 Ghordius
Ghordius's picture

"The dollar-bloc is not participating in this move against the greenback"

I was not aware of the common use of this term "dollar-bloc", I thought only FED officials use it in obscure papers

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