BostonFXtrader
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The week of July 4th has already brought early some fireworks to the foreign exchange market. The finale on July 3rd should be amazing. So far this week, the major currency pairs have been in a big figure range and a break out will be inevitable. Last Wednesday, the Federal Reserve took a step closer to acknowledging that inflation is rearing it’s head in the economy, but expects it to moderate this year and the next. The Fed gave no indications that the heightened expectations of inflation has gained a foot hole, but they seem prepared to fight it. The statement leads me to believe the Fed will not hike interest rates in the coming meetings because of the poor economic state we are in, thus allowing the US Dollar to continue it’s slide.
With the carnage still continuing in US equities and the housing market, the Fed is facing the grim reality that this situation of high inflation is here and jobs / growth are not. The FOMC can not halt the dollar’s slide by interest rate hikes, jawboning or even intervention. A rate hike may work for the time being, but if the US Dollar continues its slide, it would put the US in an even deeper hole than they are already in. Verbal intervention (Jaw Boning) became useless ever since Former Treasury Secretary Snow wore out the phrase “We have a strong dollar policy”; unfortunately, nobody believes the US spokesperson anymore. Finally, Intervention: The US doesn't have enough in their currency reserves to even put a drop in the bucket to stop the US Dollar decent. This leaves the possibility of a last resort coordinated effort from the G8. The problem with a joint intervention is that inflation is already an issue for G8 countries, and forcing them to increase their own money supply would worsen their own inflation problems. Today, the ADP Non-farm Employment Change came out at –79K, expected –20K, prepping the market for tomorrow’s Non-farm Employment Change expected at –60K. Things are not looking good the US Dollar, but, it is always darkest before dawn. The capitulation trade may be coming and a bottom will be reached. In past Trader’s Playbooks, I have said, “in late 2008 or the election, the USD should be around the bottom”. We shall test this theory soon.
The Eurozone is still watching their inflation increase thru the CPI Flash Estimate at 4.0% y/y, expected 3.9%, while their economic growth is slowing. Their Manufacturing PMI at 49.2 is under a reading of 50.0 that confirms their economic contraction. It is apparent that Germany is single handily holding the Eurozone economy together. Tomorrow at 7:45 AM EST, economists predict the European Central Bank will increase it’s 4% Interest Rate by a quarter point to fight the inflation. A quarter increase should be more than enough to quell the inflation scare the they are feeling without discouraging economic growth. The EUR/USD should push through the 1.6000, then depending on the Non-farm Payrolls and remain up there for the time being. There may be a chance that the ECB may not raise rates, so watch for the speculators to cover their EUR/USD longs forcing the currency back down to 1.5500.
England seems to be worse off than most of the other major countries. There housing market and economic growth is in just as bad shape as the US. I believe we saw the high for GBPUSD on 11/4/07 at 2.1170. I am building my short positions on every GBP/USD spike up.
Its hard to find a US Dollar bull, but come the end of the year, I feel that there should be some value owning the USD. My long term trade is still short CHF/NOK. It should be the new carry trade.
With the carnage still continuing in US equities and the housing market, the Fed is facing the grim reality that this situation of high inflation is here and jobs / growth are not. The FOMC can not halt the dollar’s slide by interest rate hikes, jawboning or even intervention. A rate hike may work for the time being, but if the US Dollar continues its slide, it would put the US in an even deeper hole than they are already in. Verbal intervention (Jaw Boning) became useless ever since Former Treasury Secretary Snow wore out the phrase “We have a strong dollar policy”; unfortunately, nobody believes the US spokesperson anymore. Finally, Intervention: The US doesn't have enough in their currency reserves to even put a drop in the bucket to stop the US Dollar decent. This leaves the possibility of a last resort coordinated effort from the G8. The problem with a joint intervention is that inflation is already an issue for G8 countries, and forcing them to increase their own money supply would worsen their own inflation problems. Today, the ADP Non-farm Employment Change came out at –79K, expected –20K, prepping the market for tomorrow’s Non-farm Employment Change expected at –60K. Things are not looking good the US Dollar, but, it is always darkest before dawn. The capitulation trade may be coming and a bottom will be reached. In past Trader’s Playbooks, I have said, “in late 2008 or the election, the USD should be around the bottom”. We shall test this theory soon.
The Eurozone is still watching their inflation increase thru the CPI Flash Estimate at 4.0% y/y, expected 3.9%, while their economic growth is slowing. Their Manufacturing PMI at 49.2 is under a reading of 50.0 that confirms their economic contraction. It is apparent that Germany is single handily holding the Eurozone economy together. Tomorrow at 7:45 AM EST, economists predict the European Central Bank will increase it’s 4% Interest Rate by a quarter point to fight the inflation. A quarter increase should be more than enough to quell the inflation scare the they are feeling without discouraging economic growth. The EUR/USD should push through the 1.6000, then depending on the Non-farm Payrolls and remain up there for the time being. There may be a chance that the ECB may not raise rates, so watch for the speculators to cover their EUR/USD longs forcing the currency back down to 1.5500.
England seems to be worse off than most of the other major countries. There housing market and economic growth is in just as bad shape as the US. I believe we saw the high for GBPUSD on 11/4/07 at 2.1170. I am building my short positions on every GBP/USD spike up.
Its hard to find a US Dollar bull, but come the end of the year, I feel that there should be some value owning the USD. My long term trade is still short CHF/NOK. It should be the new carry trade.
