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Technical and Fundamental Factors Point to Stronger Dollar
The US dollar is poised to extend last year's rally. The US economy is at least several quarters ahead of most of the other major economies. Barring a major surprise, the Federal Reserve will likely hike rates around the middle of the year, while the economies in Europe and Japan need more stimulus.
In the week ahead, investors will likely learn that the euro zone and Japanese economies continue to struggle, while US job growth continues. There are preliminary signs that labor costs are beginning to rise, helped by rising wages. This is expected to continue to underpin US consumption.
Still, it is unreasonable to expect the US economy to maintain the 4%+ pace seen in the April-September period. It also seems unreasonable to think that the drop in oil prices, lower interest rates, and weaker currencies will not have a positive impact on Europe and Japan. It will take some time. In the meantime, the divergence theme is the focus and this bodes well for the greenback.
The US Dollar Index has established a foothold not only 90.00, which was a post-Lehman cap., but closed the week above 91.00. The next important target is near 96.00. Further out a move toward 101-102 should not be ruled out.
The euro is poised to bust the $1.20 support area. A break targets $1.1875 and then $1.1650 over the medium-term. More immediately, counter-trend bounces toward $1.2130-50 will likely be sold. The greenback closed the week above CHF1.00 for the first time in four years. Although there is some nearby resistance in the CHF1.0070 area, the next important target is near CHF1.1360.
The dollar's down draft against the yen that saw it dip below JPY119 on December 30 was a bit of a fluke. Blame it on thin markets. The move seemed sufficient to wash out the weak dollar longs. As they re-build, the dollar will re-test the multi-year high seen earlier in December near JPY121.85. Above there, technicals point to JPY124.15, the high from 2007, and above there JPY125.00-60. Support is seen in the JPY119.40-60 area now.
Sterling shed 2.5 cents before the weekend to about $1.5325, a 16-month low. From the middle of November through the end of December it traded largely between $1.55-$1.58, with a few minor exceptions. The proximate cause of the breakout was the softer than expected manufacturing PMI, but sentiment toward sterling has been souring. The government's fiscal goals do not seem realistic. The current account is deteriorating. Polls for the May election indicate that Cameron/Osborne's hope of heading a majority government is highly unlikely (and that was a precondition for a referendum on the EU). While there may be some support near $1.52, technically better support is seen near $1.50 and then $1.48.
Weak global growth, soft commodity prices and a stronger US dollar leave the dollar-bloc currencies vulnerable. The US dollar met our longstanding target near CAD1.1725, but has not shown signs of topping. There is immediate potential toward CAD1.1780-CAD1.1800. Over the medium-term, there is potential toward CAD1.22.
Look for the Australian dollar to slip into the technically important zone between $0.7950 and $0.8000 in the next couple of weeks. The central bank governor has been quoted arguing for $0.7500. This is do-able, but it will likely take several months to achieve.
US 10-year yields are getting little traction. Throughout the last three months of 2014, the high yield print was lower than the previous month. January is likely to keep the trend intact, and to do so, the yield needs to stay below 2.35%. Capital flight from Europe and emerging markets seem to offer some insight into this new version of the Greenspan Conundrum. This was the problem Greenspan had identified when the Fed was raising short-term interest rates and long-term interest rates continued to fall. Technically, there appears potential for the 10-year yield to slip back toward 2.0%.
The two-year note yield peaked near 74 bp at the end of last year but slipped back to 66 bp at the end of last week, encouraged by the drop in oil prices and the somewhat weaker manufacturing ISM. Further slippage seems likely in the very short-term, but prospects of a Fed hike near mid-year should prevent a significant break of 58-60 bp.
The price of oil (February WTI) fell $3 a barrel since Xmas eve. Momentum has waned near $52 a barrel. We note that both the RSI and MACDs have not confirmed the new lows. However, we are reluctant to read too much into these bullish divergences. While the rig count in the US is falling, output has risen. Russia and Iraq also appear to have stepped up their production.
The near-term technical outlook for the S&P 500 is not clear. The light participation over the last couple of sessions argues against reading too much into the price action. At the same time, both the RSI and MACDs have failed to confirm the new highs reached at the end of last year. The 120 point advance off the low on December 16 may have run its course. The 2048 area seen on January 2 meets the minimum retracement objective of the two-week advance. A break of this area would signal a move to 2033, and possibly to fill the old gap created on the higher opening on December 18. That gap is found between 2016.75 and 2018.98. On the other hand, a move back above the 2171-76 band would point to a resumption of the advance.
Due to the holiday the Commitment of Traders report was delayed.
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I think they'll keep the "business as usual" train running until there's a challenge so strong outside the dollar tunnel (like nations trading oil for gold, Yuan, wheat, whatever) that collision will be imminent.
That could lead to war. Will it be in 2015? Unknown. I think they'll stretch it out as long as humanly possible, despite the mathematics. I'll keep stacking and trying to the FUCK out of Cali before 2020. Make ready for what's to come.
Jim Willie: We're in the END GAME: The Dollar Will Rise Just Before it COLLAPSES!
http://beforeitsnews.com/economy/2014/12/jim-willie-we-will-quickly-see-a-lot-of-banks-going-down-in-the-next-year-2683646.html
My take?
Cars? Channel Stuffing Galore - fudged numbers by the GOVERNMENT controlled "car corporations"
SEE: China Motors (GM), and FIAT-RE-CALL Chrysler. Lest we forget who installed the lackey at GM.
EMPLOYMENT: Sure, the numbers look "good", but as has been said here; FEW TRUE "jobs" - careers, 401ks, pensions, etc....but PLENTY of part time, ObamaNoCareAvoiding, minimum wage (and I don't care if it gets to 17 an hour..it'll cripple the country).
Employment numbers spun like cotton candy at the fair. Whispy...plucked out of the air numbers, washed and set out to dry. Hiring a gaggle of part timers without pension/retirement/profit sharing wortries is a damn sight better than hiring QUALITY career employees.
The USD is being pushed up by the global Bilderbooging, Elitist Swine Cunt Bankers, who want to ruin Russia, stymie China, and keep the USD as the WRC.
Marc's insight is correct as to FX...but FX doesn't equate to the stawk markets - and the overall economy(ies) always.
This time is one of them.
smart people still trying to fit that round peg, into the square hole.
technical, and fundamental factors.
concerning today's, "markets", you hit the nail on the head with the technical, and fundamental factors, when explaining the December 30 usd/jpy trade, (fluke, thin markets, and flushing out the weak longs).
the whole world is going to suffer for what maybe, the last stand, for king dollar.
Always an interesting and informative read. Please keep posting your analysis.
Marc you may want to do a piece on the destruction of USD as global USD denominated debts are retired compared to the FED print.
The dollar is like yesterday's Boehner.
Hey Marc, these guys don't seem to get you, but I get it. Dollar bull because we have plenty of oil and interest rates are close to rising. And even if we don't raise rates, there's massive oversupply of everything due to malinvestment -> deflationary.
Deflation, then inflation. Marc's right, I think.
Jame Rickards "currency wars" says the same thing. A best seller amongst the Chinese elite by the way.
It all sounds like more volatility to me.
Excellent news.
:)
first 6 months should be awesome for USD. But at what point will it be bad for US compaines, eventually it will but not at these levels.
plus lets not forget about CRUDE chart and the seaonality chart here => http://bit.ly/1B4K0wkis very interesting.
Everyone is talking about CRUDE will crash, but the market is holding, so when crude starts bottoming, the market BEARS will have their testicles in a vice, and it will not be pretty for them. I would not be surprised if we see 2300 on the SPX this year.
On the USD monthly we just broke out of some significant areas, and the last time we do that we shot up like 15 cents. So the next 6 months will be interesting.
......Bullish this won't end well,
speaking of the Yen...Japan has 'The Bomb'.....
Why i say ?#Japan? has 'The Bomb'.
1. The bomb is the main reason for the secrecy act in Japan
2.Japan has one of the best equipped and most advanced military's on the planet.
3. Japan has an unholy alliance with #Israel.
4. Japan has MOAR #Plutonium than any other country on the planet.
5. Japan is desperate and mortally wounded from #Fukushima.
6. Japan has just sold missal capable suds to #Australia. It was inferred that they are nuke capable. Japan is moving into moar military related exports.
7. Abe.
8. Latent samurai overhang, ie. WW 2.
9. Japan's economy is toast on a stick.
10. #China
over
Dollar rise is artificial and relative to other currencies. It will rise for a while at least. And, a rising dollar is not a good thing for world economies who have expanded their loan base with previously cheaper dollars. It ain't good all the way around. Not rosy at all.
- What was responsible for that 4% GDP print anyway...?
- What sectors is all this 'job growth' taking place in...?
- What is the nature of these jobs - i.e., 'duration'; part-time or full-time...?
- The debt just rose again by almost $100B a day or three ago. Given the (proven) inability of the U.S. to curtail its spending/debt habit, what measure of a rate hike should we expect come June...?
- Is it too early to factor in the 'oil patch' and the layoffs already beginning, or does that not matter because the consumer (non oil patch layoff-ees obviously) have more $$$ to 'spend'...?
You're a regular reader to this site, Marc. There are stories and opinions here you may scoff at, but there are also undeniable truths and evidence that are indifferent to opinion - they simply are what they are and people can choose to ignore them or look at them and compare, within the context of 'mainstream' information. One would think a man of your experience and who often chooses to use tag-lines such as: 'A dispassionate look at the markets', would be cognizant of such and perhaps offer some depth, rather than simply regurgitating idiocy such as '4%' GDP, without giving the reader (much) warranted background on just how such a number came to be for example. Stated differently, you have the 'chops', so give the equally seasoned audience here something more than mainstream 'pap'.
Conseuelo for some one who pretends not to like me or my writings, you sure do spend a great deal of time reading and responding to them. It is nice that you are sweet on me, but really I prefer politer and less meanspirited friends. Sorry man, you are not my type. You fault me for my tag lines--even though others use inflammatory tag lines to draw readers. Now you want to instruct me which arguments I should engage in and which I shouldn't. Now you don't like that do not devote my time and energy to refuting the government's methodology that produced an estimate of 5% GDP in Q3 and 4.6% in Q2. Another comment suggests the employment data is also not accurate. The fact of the matter is that it is the government's estimates that influence policy and investors. You can say all you want that the economy is not growing, and that the labor market is not improving. And I say that while your opinion is nice to know, it will not help understand what the Federal Reserve is going to do, or why the dollar is going to strengthen. My goal is to participate in the dialogue of the day and influence investors and policy makers. I do post other types of pieces on my blog, if you are truly interested. You may not like it that the Tylers allow my commentary to be posted on ZH, but that is not your decision to make.
That said thanks for thinking of me Consuelo. Happy New Year.
Hey Marc -
Not that I necessarily want the 'last word' here but... Yeah, I've ragged on your 'tag lines', but after all, what is it that your tag lines convey anyway, other than a not-so-cleverly disguised 'slap' at those who Question mainstream opinion? I simply point them out in an equally sarcastic way... It's quite obvious you have fairly outsized chip for anyone who doubts mainstream numbers - be it GDP, employment numbers, (Ukraine...), or anything related - cool.
In the previous post today, I simply asked some pertinent questions that I think would have helped build a better foundation of credibility for your arguments, but according to you, those 'questions' have no place in the discussion because they aren't 'mainstream', and being not mainstream, consequently have no place in the sphere of a 'government estimates' based approach and opinion on the general markets. I get it... Touching the '3rd rail' of the 'conspiracy realm' as it were - truth or not, ain't good for business.
Happy New Year to you as well Marc. We don't agree but I appreciate someone of your status engaging me here all the same. We will see how this all shakes out soon enough.
I never said that questioning the methodology is not appropriate question. It is simply not the question I ask. I do not fault the carpenter because he cannot fix my toilet. I would say this though about the government's methodology. It is a heavily studied issue academic and practicing economists. The news wires only publish parts of the US data. So for example, the same government that is suspect of cooking the books also provides data on things like # of part time workers, average pay etc. The government reports health care spending. It reports the size of the its budget deficit and debt figures. Tylers often cite US economic reports and often is helpful in showing contradictory results. Studying how the data is gathered and analyzed by government economists is a helpful exercise. I would encourage you and others to call the Bureau of Labor, talk to the economists. They are accessible.
I am sympathetic to questioning all authority--with equal vigor, including the Tylers'. On pragmatic grounds I pick and chose where and when. If a post is going to talk about where the dollar is going to go next week, a discourse on the methodology of the government, or which pieces of data the media focuses on is a distraction.
Exactly, and that's why I asked him above if he read the articles at ZH. The GDP number (among many others), is laughable and he should know that. It isn't accurate or the reason for a stronger dollar. That kind of statement is disingenuous at best and a blatant lie at worst.
Marc, nobody gets a free pass around here doling out that kind of MSM propaganda, so please give it a rest.
Bay of Pigs...I do not find every thing I read here as credible. ZH is not the first or last word on economic analysis. I say the divergence between the US and the rest of the world is behind the dollar's rise. And what do you say the reason is: manipulation by officials ? algos? I do not ask for a free pass, whatever that means on ZH. You say my analysis is propaganda. Solution, my friend, don't read it. But you do, because you know it is cogent analysis.
Bay of Pigs...I do not find every thing I read here as credible. ZH is not the first or last word on economic analysis. I say the divergence between the US and the rest of the world is behind the dollar's rise. And what do you say the reason is: manipulation by officials ? algos? I do not ask for a free pass, whatever that means on ZH. You say my analysis is propaganda. Solution, my friend, don't read it. But you do, because you know it is cogent analysis.
Your question has been answered many times, yet you ignore it (especially the print Yen/buy UST QE connection). On top of that, your analysis is flawed becasue the data you use to buttress your arguments is nothing but blatant propaganda (using phony US gov't numbers). I think other posters have been clear on this as well, and have pointed that out to you.
Cogent analysis? More like Amatuer Hour. No offense Marc, but I am done with your nonsense. Anyone listening to you for accurate reasons for a stronger dollar won't get it from you. You're actually closer to a troll when it comes to writing decent and honest analysis on this particular subject.
Bay of Pigs, by all means if you do not like my analysis, stop reading it. I will miss your keen insight, but I'll live.
Given what oil is doing, I would say so. The lower both go the sooner Asia will take advantage of the resulting low input cost dividend. Expect another tsunami of foreign investment to follow.
m to m? do you consider yourself part of the problem? or solution? or just messanger?
Why is that relevant, New Game. It is about me. It is about the analysis. And before you offer it, I don't care whether you think you are part of the problem, solution or messanger either.
>>>Why is that relevant, New Game. It is about me.
Paging Nurse Ratched! Paging Dr. Freud!
M2M I'm sure you are a very smart person.
But what you call "fundamental factors" I call "smoke & mirror".
Current markets are not at all driven by supply and demand like they were 40 years ago when even a so called "local" trader had a chance to make some coin.
Thank you for your work but I think I will tke my bullion and lay low for a while longer.
Yes by all means keep your bullion. Let me know how long it will take you to recoup what you lost in price, holding (storage, insurance) and in opportunity costs. Markets were free 40 years ago? Really? In 1975, really ?
"while US job growth continues.There are preliminary signs that labor costs are beginning to rise, helped by rising wages. This is expected to continue to underpin US consumption. "
really?
yes.
Not everyone at the Federal Reserve is part of the happy clatter crowd. On October 13, 2014, Chicago Fed President, Charles Evans, spoke before the annual conference of the National Council on Teacher Retirement in Indianapolis. Evans expressed skepticism that an economy can be robust with the tepid growth in wages happening in the United States. Evans stated:
“…it is hard to imagine a robust labor market without solid growth in wages. With productivity growth of around 1 to 2 percent and an inflation target of around 2 percent, we should be seeing wages and benefits rising at around a 3 to 4 percent rate. But that is clearly not the case. Although some in-demand occupations may be experiencing stronger wage growth, overall compensation growth has been around 2 percent over the past six years. Taken altogether, these and other measures lead me to conclude that there remains significant underutilization of labor resources — and likely somewhat more slack than what is indicated by the unemployment rate alone.”
http://wallstreetonparade.com/2014/12/oil-crash-dont-believe-the-happy-c...
deleted repeated post
no. US consumption is based on manipulated (low) interest rates and sub-prime loans and long term (compared to historical lengths) loans and leases all of which will kill production/consumption in subsequent years. malinvestment is at play, not rising wages.
anecdotally, i know a newly licensed RN in a major US city who will make only $22/hr after years of schooling. winning?
Most RN programs are 2 years in length. $22/hr is not bad for a 20 year old who probably has a little trouble with 8th grade algebra. Many new RN's started out studying something else and might have a 4 year degree in some field where they can't get a job. There is a big industry selling hope to young people by getting them enrolled in nursing programs after already being shaken down by "Big Higher Ed".
RN 2 years???
I know engineers who graduated with bachelors, masters, and PhD degrees who can't find jobs. At least the RN gets $22/hour.
Marc...while there may be jobs out there, they aren't the kind you need to fuel consumption.
As to rising wages, well, the only rising wages I've seen are coming from increases in the minimum wage. The only trouble is, the increases are not organic, they are being forced in a pretty bald-faced attempt to curry favor with certain groups. That isn't the kind of wage increase that heralds an improving situation for labor, in fact, it indicates the opposite, and shows the downward pressure is so severe it requires lawmaker intervention...
Bemused observer, do you even look at the data? Look what will be reported on Monday. US auto sales--not reported by the evil government--will show auto sales were around 16.5 mln vehicles in 2014. That is up 1 million from 2013, which itself is up 1 mln from 2012. Vehicle production, which is organized on a continental basis was just below the record set in 2000. People and businesses do no pay tax on phantom income. Part of the dramatic reduction in the US budget deficit (not debt) is because of higher revenues in income and profits. I do agree with you that workers get concessions from the state not from capital. Your analysis of why some lawmakers support hiking the minimum wage does not seem like robust analysis to me. Some, say like Bernie Sanders, actually believes that minumum wage should be higher. It is just a ploy to curry favor, as you say.
I'm guessing your definition of phantom income is different than mine. I have done quite a bit of residential development and I can assure you phantom income is very real in that sector.
That being said, isn't a lot of the Dollar strength because of the security (real or perceived) of the Dollar as a currency? There's just not a lot of good choices out there for your savings if you're a saver in Europe/Asia/Australia/etc.
I think the security is more perception than reality, but foreign savers clearly do not agree. To me that looks like a flight to (perceived) safety of the U.S. Not a robust US economy heating up.
http://www.zerohedge.com/news/2015-01-02/these-19-states-just-hiked-mini...
There is no sanity checking in the global markets. I get the feeling that a monster has been created that will feed on everything.
yeaaaa, china stawks, nucking futs, up 50 percent in 14. vegas planned out at warp 5...
I suspect, that despite the US Governments best efforts to stop it, people have found ways to earn money.
Technical & fundamentals?
"algos & manipulation"... fixed it for ya
Fine Sedaeng have it your way. After 'algos and manipulation" drove the dollar down, they are now driving the dollar higher. Be prepared. I won't bother asking why those you say are manipulating the dollar first wanted it lower and now want it higher. I say the change is one that can be explained by fundamental factors.
Come on Marc. Everyone here knows the "strong dollar" is because of Yen printing and how that has become continued QE for the US (UST buying).
Do you read anything here at ZH? It sure doesn't sound like it with your superficial and often absurd analysis about "fundamentals".
Lets see what would happen to the companies underpinning the economy if they actually had to mark 2 market, instead of mark 2 model. People forget quickly that the "extradordinary measures" put in place in 2009 now seem like the new normal. Remove them and the market would be in the shitter, right alongside the economy.