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Dollar Bull Run
The US dollar posted strong across the board gains. It is being driven by the anticipation of favorable developments in the US, in the form of a possible slowing of the Fed's asset purchases, and less favorable developments abroad.
While it is technically poised for additional gains, the biggest risk to the dollar comes from Fed Chairman Bernanke's midweek testimony. His commitment to QE and readiness to taper purchases, as others have suggested, will be closely scrutinized. The failure to confirm these growing market ideas, spurred in part by comments from two (non-voting) regional Fed presidents, could prompt some profit-taking on long dollar positions.
While speculation that the Fed may take one of its feet off the accelerator in the next week month helped lift the dollar, other countries are easing policy. There has been even more talk about the ECB adopting a negative deposit rate. Continued sub-50 readings in the flash PMI, due midweek, will heighten the sense that the euro zone continues to contract for the seventh consecutive quarter.
The ongoing decline in the yen is meeting little official resistance. Chinese officials, for example, seem more upset by comments by the mayor of Osaka (which the US also criticized for being "outrageous") then they about the depreciation of the yen. The US Dollar Index has risen 3.7% from the low on May 1 to its best level since 2010, and it recording its best two week run since in a year.
Euro: A large head and shoulders pattern is being carved out. The neckline is seen near the late March and early April lows around $1.2740. Below there is the low from last November near $1.2660, which is just below the $1.2680 retracement objective ($1.2680) of Draghi's OMT induced rally. The measuring objective of the head and shoulders pattern would carry the single currency below $1.20, our year-end target. The euro's 50-day moving average crossed below the 200-day (golden cross) for the first time since last October.
Yen: The pullbacks in the US dollar continue to be shallow. This is not giving the longs any pain and it gives many momentum and trend followers a sense that it is a one way bet, a mindset that often proves dangerous. Support now is seen in the JPY102.35-60 area. Although there are reports of option structures before, many have their sights set on JPY105.
Sterling: The upside correction from the mid-March low near $1.4830 has ended decisively. That correction had held a up trend line, which sterling closed below at the start of the week near $1.5350. A convincing break now of $1.5120 area suggests a return to, and likely a break of, this year's low. Sterling has also broken below a trend line connecting the lows of the past three years. This sours the longer-term outlook and warns of a move toward $1.42.
Canadian dollar: The US dollar is flirting with trend line resistance against the Canadian dollar going back to 2011. The year's high was set on March 1 near CAD1.0340. A break of it opens the door for a move toward CAD1.05-CAD1.06.
Australian dollar: The Aussie has fallen out of favor in a big way. It has been aggressively sold-off; the largest decline over a 10-day period in more than a year and a half. It has convincingly broken a trend line drawn off the 2011-2012 lows that came in just above $0.9800. An investment bank called for a move to $0.8000. This corresponds to the 2010 lows and a 61.8% retracment of the post-Lehman rally. It may be a reasonable longer-term objective, and by the OECD's purchasing power parity model, the Australian dollar is almost 30% over-valued. However, given the difficulty in forecasting exchange rates and the substantial risks that are involved, as well as mitigating factors like Australia's triple-A credit rating and a currency that is gaining recognition as a reserve asset, we suggest medium term investors should anticipate half of that move, or $0.8900-$0.9000 and place stops accordingly.
Mexican peso: Over the past year, the Mexican peso has appreciated by 11.5% against the US dollar; making it the strongest among the G7 and liquid emerging market currencies. While we recognize attractive underlying fundamentals, technical factors have made us more cautious. A dollar bottom has been carved out over the past month. The long peso position remains large and a move above MXN12.40 could spur a further dollar short squeeze. A correction could carry the greenback into a MXN12.60-MXN12.80 range.
Observations from the latest CFTC report of the CME currency futures:
1. Participation rose as new gross positions were established across the board, with two minor exceptions, short Canadian dollar and short Mexican peso positions were trimmed.
2. There were 4 substantial (more than 10k contracts) position adjustment and they were all adding to the gross short positions: euro, yen, Swiss franc, and Australian dollar.
3. The 36% rise in gross short Australian dollar positions to a record 75.1k contracts was sufficient to switch the net position to the short side for the first time since last June. Nevertheless, the gross long position remains the second largest among the currency futures, behind the Mexican peso.
4. The gross short euro position is just below 100k contracts. Last June, as the tensions were mounting that led to the Draghi's OMT offer, the gross short position was 250k contracts. The gross short sterling position is approaching the record from March of 105k contract. The price action and the increase in open interest since the CFTC period ended suggests new shorts have been established.
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I'm not exactly sure how a stronger dollar helps lift the economy given exports will plunge. And I'm sure the housing industry will welcome higher mortgage rates with open arms.....
Son of Loki--do i say that a stronger dollar will help exports or are you just bring up a straw man ? Moreover, I argue elsewhere that US companies do not service foreign demand by exporting. The primary way is build locally sell locally. This is the way the empire works.
..".The incredible concoction of debt, derivatives (that will never be repaid with normal money) and accelerating fiscal deficits in most countries will guarantee money printing in unlimited quantities...
And Bernanke (and his successor) and fellow central bank heads will not disappoint. The only important criterion in the job description of a central bank chief is that he/she is willing and able to print whatever is necessary and in the next few years that will most likely involve printing 100s of trillions of Dollars, Euros and Yen.
"So it is guaranteed that Bernanke and other central banks will continue their superb productivity. Bernanke has of course been the most productive man in history. In his 7 years as Chairman of the Fed he has printed more money than during the whole history of the USA. US Federal Debt has between 2006 and 2013 gone from $8.4 trillion to $16.8 trillion.
Bearing in mind that it took 230 years for the US debt to reach $8.4 trillion in early 2006, this is quite a feat achieved by Bernanke.
But this is of course just the beginning. Bernanke (and successor) will not only have to print for the US. They will have to print and give money to the IMF, to the ECB, to the BoE, the BoJ and to cover $1.1 quadrillion of derivatives which will be worthless. It is unlikely that the world’s central bank computers will have enough zeros to cope with this infinite money printing."
Source : KWN, E. V. Greyerz, 5/17/13
Oh, if life was only so simple as to create wealth by printing money. And if lies could only magically be made truth, we would be living in paradise for sure!
Wow. Total science-fiction masquerading as market reportage. The new normal .... think I'll just insert this link
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/18_Ar...
and be done with it. Then perhaps, I'll spend a week or so imitating Eric "Kong" King here. Just to out-hyperbole the hyperbolists! At this point, the MSM Marc-to-NationalEnquirer narrative makes Eric look like a paragon of impartial, objective reporting!
"KingDollar" vs "EriKOngKing"... one on one! Tickets still available!
C'est fantastique!
"Support now is seen in the JPY102.35-60 area."
Uh, when was this written? Yen blew through that support and is now down to 103.225
Pool shark--please re-read my post. I am clearly talking about dollar support, noting that the pullback have been shallow. The JPY102.35-60 area is a dollar level, not a yen level. I say that only to help you understand what I am saying. Of course, you may still disagree with my post, but surely it should not because you confuse what the subject is--the dollar, with the yen.