A Pfennig For Your Thoughts

In This Issue…

  • It’s time for the euro!
  • Dressing up pigs…
  • U.A.E. to delay one month…
  • Thai PM resigns…

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And Now… Today’s Pfennig!

Almost Finished…

Good day… Well… I got a great opportunity to visit our new Baseball Stadium last night… B-E-A-U-T-I-F-U-L! I can tell already that there will be lots of good times had by yours truly in this new ballpark! Opening Day for the Cardinals in the new park is only 5 days away!

OK… What a nice rally we had going for us in the currencies yesterday! WOW! I was setting up all my trading reports, and looked up at the screens to see the euro being marked up like it was a fire sale of dollars, and it didn’t stop until one whole cent had been added to the euro’s girlish figure! 1.2260! So… I had to stop trading and find out what was going on to make this move so fast and furious…

Well… First, PPI was reported as growing faster than expected in the Eurozone, which if we take the same SIRT that was used to push the dollar up last year and apply it to the euro, voila! We have a currency that is going to push higher because interest rates will be going higher!

Then, right about the time traders thought it was safe to get back into the water… Da da, da da da da, da da… OK, now the haunting music is in your head, and you are remembering the first time you saw the movie Jaws…. Good! Because just when traders thought it was safe to get back into the water, along came news from Fed member (non-voting), KC Fed President Thomas Hoening that he believes the Fed is “very close to where we need to be on rates”…

OK… The Fed is almost finished with rate hikes… And the ECB is just revving up the rate hike engine… This looks very bearish for the dollar… And very bullish for the euro… And… Sounds hauntingly familiar with a scenario that I laid out for 2006, some time ago! Yes… First the HIA repatriation of dollars ended on Dec 31st 2005, and now we’re “almost finished with the rate hikes that also supported the dollar in 2005…

I guess it’s time to revisit the overall fundamentals for the dollar, and brother… As I’ve always told you… You can put lipstick on a pig…. But it’s still a PIG!

We’ll get an idea of what the ECB has up their collective sleeves tomorrow when they meet… No rate move, but as I said on Monday, I expect ECB President Trichet to sound very hawkish and indicate rates in the Eurozone are going higher.

There has been news from the Middle East that pushed the dollar down last week and that was the UAE announcing that they would convert some of their dollar reserves to euros… Well… Yesterday, the UAE announced that the actual conversion will be delayed one month, but to keep the sharks circling the dollar… A Qatari central banker says they could hold up to 40% of their reserves in euros when all is said and done!

Add to that this piece of news… The states of the Gulf Cooperation Council (Saudi Arabia, Kuwait, Bahrain, Oman, U.A.E. and Qatar) currently peg to the US$, but are thinking of adopting a common currency. It is from these countries that a lot of petro-dollars that have provided an important source of funds for the U.S. have come.

Very interesting idea… But who knows how long it would take them to create such a common currency? If you use the euro for a template, they could begin now, and in about 20 years, they could have their common currency! But… The idea is enough to spook dollar bulls…

Yesterday, I talked about the U.S. Manufacturing Index (ISM) falling from the previous month’s level, and this month’s “forecasted level”… A longtime reader in Chicago sent me a note and reminded me that I always say that one swallow doesn’t make a summer… And that’s true… I wasn’t trying to indicate that this one month fall was a trend… I probably made it sound that way… Thanks!

News from the Asian region this morning… Thai Prime Minister Thaksin Shinawatra announced last night that he was stepping down from his post. His decision follows months of protests demanding his resignation and a boycott of the poll by opposition parties. This news has not had a negative affect on the Thai baht… In fact, the baht has rallied a bit on the news… Recall, that I had told you a couple of months ago that the baht had gotten sold on news of a PM scandal… Well, that’s all water under the bridge now, and the baht can get back to rallying!

Before I head to the Big Finish… I was doing some research yesterday, and saw that the Norwegian krone had gained 4.5% vs. the dollar this year… Stealth-like, for sure! But… The euro has gained almost 3% vs. the dollar this year, and when you get right down to it… All it takes for the “other” European currencies, like Norway, Sweden, Swiss, Denmark, and even Iceland, is for the euro to put one hundred miles of desert between this year and last year… That’s right… The Big Dog,(the euro) has come off the porch and is chasing the dollar again… All the little dogs will follow… Who let the dogs out?

Currencies today: A$ .7240, kiwi .6125, C$ .8590, euro 1.2265, sterling 1.7550, Swiss .7770, ISK 72.20, rand 6.0375, krone 6.4250, forint 217.19, zloty 3.24, koruna 23.2820, yen 117.40, baht 38.35, sing 1.6090, China 8.0088, pesos 10.9150, no dollar index today, silver $11.66, and gold… $588.80

That’s it for today… Working from home this morning, as I have a sickly automobile to deal with… Wouldn’t you know it, I finally begin to feel better, and now my automobile acts up! UGH! Not to worry, I’m sure it’s just some computer malfunction! Well… Our “new Busch Stadium” is quite a treat… My whole family came with me for this visit, and I think they were all quite impressed! Have a great Wednesday!

Chuck Butler
EverBank World Markets