Strong Chinese Exports Cause Aussie Dollar to Soar

Yesterday’s price action in the currencies versus the dollar was a drag, man… We did, however, see the higher yielding currencies begin to move away from the pack of currencies led by the euro (EUR). That move higher by the likes of Australia (AUD), Brazil (BRL), South Africa (ZAR), and others, carried over through the overnight sessions, so, as we start today, they are stronger versus the dollar… In fact, the Aussie dollar is near a 7-week high this morning.

Greek Spending Cuts Lead to Civil Unrest

What a day the currencies had yesterday! The euro (EUR) gained ground all the way back to 1.3730 (but saw some profit taking at the end of the day) and all the other currencies followed in step… Now… There’s two ways to look at this… Either the euro is like a star that’s getting ready to burn out… (It always shines brightest before it burns out), or… It’s like a star that had been covered up by another planet, and is coming back into view!

US Jobless Numbers: A Lag in a Lagging Indicator?

The markets didn’t hold any real surprises yesterday as they continued to trade in a narrow range throughout the trading day. Overnight, the Asian markets sold the dollar, as good economic data from Japan and some promising data out of Australia convinced traders the global economic recovery is still underway. While Europe and the US continue to focus on the debt crisis in Greece, the Asian region continues to perk up. But I’m getting ahead of myself; let me get back to what happened in the markets yesterday.

German Investor Confidence Declines

Remember last week, when I told you about the 10-year Treasury auction results? I told you that the yield had to be driven higher by 7 BPS to attract investors… Well, that’s cotton candy compared to the news from the 30-year Treasury auction!

Let me put this as simply as possible… “Indirect buyers” are the foreign central banks, and they normally take down 40% of a Treasury Issue… Well, last week, they only took down 28% of the issue… Uh-Oh! But then, there were the “direct buyers” upping their participation in the auction to a record level of 24%!

Germany Weighs Possible Bailout of Greece

There are rumors going ’round that, 1. There is a secret central bank meeting going on, and 2. That Germany is weighing bailout possibilities for Greece…

The latter really lit a fire under the risk assets yesterday, allowing stocks, currencies and commodities to enjoy a day in the sun, away from the shade the dollar was casting on the risk assets. Stocks turned around and had a strong showing for the day, gold was up $15, and currencies, led by the Brazilian real (BRL) gained back some precious ground versus the dollar. I know that sounded a little strange saying, “led by the Brazilian real” as I normally associate the currencies being “led by the euro”…

Stop Deficit Spending. Save the Credit Rating.

Front and center this morning, the non-dollar currencies have seen some healing… Not much, but some… But these mini-rallies are on tenterhooks, folks; they can be reversed in a New York Minute… And, now that I look back at the screens, that’s exactly what’s happening! UGH! These turn-arounds are beginning to give me a rash!

Brazilian Rate Hike in March?

The dollar bulls were celebrating again on Friday, as the dollar rally continued. The recent strength in the US dollar will probably continue this week, as it looks like it will be fairly uneventful as far as data releases. We won’t have any reports out in the US today, and tomorrow will only bring the wholesale inventory number. Wednesday we will see December’s trade balance along with the monthly budget statement for January. Both of these numbers will likely reflect an ever-growing deficit here in the US, with a $50 billion monthly budget deficit, and a trade deficit just below $35 billion.

Global Economic Growth Takes a Hit

The news that Chris brought you yesterday – regarding the mini-rally in the currencies, led by the euro (EUR) climbing back to 1.40 – was completely washed out by the time the wheels on his plane touched down here in Orlando, yesterday afternoon. Chris had said as he signed off that the dollar was being bought right then, and he was right… And that buying of the dollar lasted all day!

Greek Debt Won’t Kill the Euro

The euro (EUR) moved back above the $1.40 handle overnight after it was announced the EU would back Greece’s plans to cut its budget deficit. European Commission President Jose Barroso said the EU is endorsing the Greek program and relayed confidence in the Greek authorities. The move came after the Greek government announced more measures to reduce the shortfall. The EU will demand monthly updates from Greece on its progress in cutting their deficit from the current 12.7% of GDP down to the EU’s 3% limit by 2012. The approval of the plan by the EU does not mean the union will be backing Greek debt with loans and does not insure against a default, but only allows Greece to continue to be part of the EU despite their large deficits.

RBA Rate Announcement Surprises the Markets

The currency markets warmed up a bit yesterday, as investors gained confidence and moved funds back out of the ‘safe haven’ of the US dollar. The main driver of investor confidence was the ISM Manufacturing Index, which expanded in January at the fastest pace since August 2004. The index rose to 58.4 in January from December’s 54.9 level. Any reading above 50 signals expansion in the US manufacturing sector. The surprising strength of this index had investors shifting funds back into the higher yielding assets yesterday, and selling dollars. Chuck took a look at the ISM numbers yesterday, and sent me the following on his way out the door:

Better-Than-Expected US Economic Growth

According to the US government statistics, we have nothing to fear any longer with regards to our economy, inflation, deficit spending, interest rates, etc., for you see, the fourth quarter GDP had a preliminary print of +5.7%! It’s all seashells and balloons for us now, folks… That’s what the cable news guys said, and that’s what’s all over the newswires. Forget about saving; go out and spend… Everybody’s doing it, they say! Just fork over those gold coins; there’s no reason to buy them any longer… Everything is fine here in the US. There’s nothing to see here, move along…

Currencies Sell-Off then Rebound Overnight

Yesterday, I told you how the currencies were in “lock-down” mode, awaiting the FOMC statement and the State of the Union Address.

Well, the “lock-down” mode got “unlocked” when the Fed said that they (the Fed Heads) would keep interest rates “exceptionally low” for an “extended period”. That got the markets spooked a bit, as they thought this was a message from the Fed Heads saying they see something that would require interest rates to remain “exceptionally low” for an “extended period”… And that brought about some of the tired old trading that we saw for most of 2009, in which, when things get dark and dangerous, the risk assets get sold and dollars are bought…