Are Fundamentals Creeping Back To The Currencies?
Daily Pfennig

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In This Issue..

* A$, C$ and Gold maintain gains...                             
* euros and reals get sold...                                  
* What will China do?                                          
* The slowest buffalo theory...                                                                                                     

And Now... Today's Pfennig!

Are Fundamentals Creeping Back To The Currencies?                                        

Good day... And a Wonderful Wednesday to you! January 6th... It's the Epiphany, or... The 12th day of Christmas! With it being the Epiphany, I wonder what will be revealed to us today regarding new deficit spending, or more corrupt government data...

OK, that was a cheap shot, but, hey! Don't they deserve it? Always doing a hedonic adjustment here, there, and everywhere to make us "feel good"... Oh well, I'll leave that there and go on to other things...

This should be short-n-sweet this morning, as I overslept, something that I rarely do... Of course, I'm still here a good hour plus before anyone else, so I've got that going for me today!

Well, day two of 2010, was another sign that the fundamentals just might be creeping back into the markets... There was a piece of data that was a good sign for the U.S. and the dollar got bought... Now... Was that so difficult to do? That's the way it's supposed to work!

The piece of data? Oh, you probably heard all about it, as the talking heads on cable news were all smiles and giggles over this one... Pending home sales plunged a seasonally adjusted 16% in November as a highly popular tax credit for first-time buyers was set to expire on Nov. 30, according to the National Association of Realtors. Of course we knew that it would take Gov't intervention to help... Isn't that what the Gov't wants to hear from us? That we can't go on without them intervening in our lives and the public and the markets?

Ok, I had better stop there before I say something that could fill my email box with not so nice notes... There was another piece of data that was good for the U.S. that kind of flew under the radar, and that was a 1.1% jump in Factory Orders in November. Apparently, businesses stepped up their demand for capital equipment to expand production... That's according to the Commerce Department...

So... Dollars were bought, but not in huge droves... And, Commodity Currencies like the Aussie dollar (A$) and the Canadian dollar / loonie, held on to gains VS the U.S. dollar... So, it wasn't like there was a huge conviction to buy dollars... The two currencies where dollar buying showed up the most were the euro, of course, by nature of being the offset currency to the dollar, and the Brazilian real...

So... Like I said yesterday, maybe the Brazilian Sovereign Wealth Fund (SWF) might have a short term affect on the real, but in the end I doubt the SWF will have that huge of an appetite for U.S. dollars, and this plan to weaken the real will join the list of "plans" to weaken the real on the side of the road... But for now... Real is weaker... Would this be viewed as a buying opportunity? I think I would wait-n-see if the SWF buys more dollars right away first...

OK, there's a story out this morning from China, where a Gov't sponsored think tank, if you will, called CASS (Chinese Academy of Social Sciences) issued a report calling for a one-time 10% appreciation of the renminbi VS the dollar to reduce inflows of speculative capital... The report calls for a 10% appreciation of the renminbi, and then a cap of 3% per year on the renminbi...

The Chinese Central Bank declined to discuss this report... And I think I can see why... Because, it makes sense! HA! Seriously... You know me... I always say, where there's smoke... There's fire, and this report certainly falls under the heading of "smoke"...

Well... Along with the Commodity Currencies holding on to gains yesterday, Gold too held onto gains, and has added $6 to its total this morning, bringing it to $1,124.50

There has been so much written about Gold in the past 6 months, and my goodness you can't watch cable TV 5 minutes without seeing a commercial with Gordon Liddy, or some other supposedly famous person telling you to buy Gold...

I just want you to remember, who was explaining the virtues of owning Gold to you long before these TV commercials, and other people thought it was a good thing!

In my December issue of the Currency Capitalist, I talked about giving my granddaughter, Delaney Grace, a Gold coin for Christmas... I know, she's only 2... But the idea here was to begin early teaching her about the store of, and the accumulation of wealth... Maybe, her generation will understand that your Gov't can't act like ours has for years now... Maybe, just maybe...

With the start of the New Year, I've completely lost track of the schedule of economic data prints... I was completely unaware that this Friday is going to be a Jobs Jamboree Friday, until I pulled up an economic calendar this morning! UGH!

The main piece of data this morning isn't really data... It is the minutes of the last Fed Reserve meeting... These minutes are usually pretty interesting, except they don't include the "By Joe, you've sunk my battleship" cries during the meeting! HA! I would look to see if the Fed mentions any time line for their supposed removal of stimulus from the economy in the minutes...

OK... I said this was going to be short-n-sweet... Apparently I don't know what that means, eh? HA!

Then there was this... I've talked quite a bit in the past couple of months about Greece, and their debt problems, and how quite a few people that should know better, have said that Greece would deep six the euro... Well... If you're in the same camp as me, and that states, corporations, financial institutions and what ever should not be bailed out, then you'll love the news from the Eurozone, where Eurozone member, Stark, said that the "EU will not save Greece" I say... YAHOO!

Why? Because, it's the old slowest buffalo thing... The slowest buffalo would get killed, but, in the end, it would make the herd faster... If Greece is as much dead weight as everyone says it is, then cut bait and run!

To recap... Another sign that fundamentals are creeping back into the markets showed up yesterday after two good data reports printed in the U.S. the dollar got bought against the euro and Brazilian real... Aussie and Canadian currencies held on to gains as did Gold... And a think tank in China is calling for a one-time 10% appreciation of the renminbi... Let's see if that sinks or swims, eh?

Currencies today 1/6/10: American Style: A$ .9145, kiwi .7325, C$ .9640, euro 1.4345, sterling 1.5975, Swiss .9675, European Style: rand 7.35, krone 5.7170, SEK 7.1110, forint 187.80, zloty 2.8550, koruna 18.3685, RUB 29.81, yen 92.40, sing 1.3950, HKD 7.7555, INR 46.85, China 6.8274, pesos 12.80, BRL 1.7355, dollar index 77.75, Oil $81.53, 10-year 3.79%, Silver $17.92, and Gold... $1,124.50

That's it for today... Well, it's colder than a... Well, it's cold here, but there was news yesterday that warmed the hearts of Cardinals fans... Matt Holiday, has agreed to remain a Cardinal for the next 7 years! That's quite a middle of the lineup with Pujols, Holiday, and Ludwick... Now, if we can find some pitching to match the Phillies! I see where Randy Johnson has retired after 22 years of scaring the bejeebers out of left handed batters! He was a very good pitcher, I would say! The weather people tell us we'll get 3-5 inches of snow tonight... Cool beans! I mean, if it has to be this darn cold, it might as well snow! And on that note, I'll end this short-n-sweet version of the Pfennig for this Wonderful Wednesday! Hey! Stay warm!

Chuck Butler
EverBank World Markets

Posted 01-06-2010 11:20 AM by Chuck Butler