A Change Of Heart?
Daily Pfennig

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In This Issue..

* Very Tight trading ranges...

* Gold and loonies are cheaper today...

* What are these guys thinking?

* China not "ideal" to buy gold?

And Now... Today's Pfennig!

A Change Of Heart?

Good day... And a Terrific Tuesday to you! Well... Here we are this morning, the currencies have basically remained stalled, with only the "higher yielders" making any headway, albeit small headway.

The non-dollar currencies saw a bit of selling yesterday morning, after I signed off, but have rebounded, like I said, a bit in the overnight markets. There's a feeling among us here on the trading desk that we're about to break out here... It's either going to be a break out to the high side or the low side... But I doubt that we're going to remain in these tight ranges for too much longer. But, that's just my opinion, of course, I could be wrong!

The majority of the pundits out there in newsletter writer land are saying that they believe the direction will favor the dollar... I wouldn't argue with them too much as long as they put the caveat in there that it's just for the short term, and that it's not a trend reversal of the weak dollar trend.... I wouldn't argue with the people, which would probably be just arguing with myself, that think the non-dollar currencies will go back to taking liberties with the dollar once again, for the fundamentals would point to that in the long run...

The thing I think most pundits don't understand, and then therefore their readers don't understand is that that the dollar has no other direction to go in the long run but down... All this stuff in between is "noise"... And nothing more than a "circuit breaker" for the dollar...

The euro has had to take on a bad piece of data this morning, as the German Business Confidence, as measured by the think tank, IFO fell for the first time in 11 months... I had a reader from Germany send me a note the other day, and tell me that it's all seasonal, and that they've had the coldest winter in 14 years... They truly expect for this to all turn around once spring gets here... I certainly wouldn't mind seeing that happen soon myself!

I recall that last spring, it was cold and wet for the longest time... I sure hope that's not the case this year...

Back to the euro for a minute... German Chancellor Angela Merkel, who I quoted last week giving the financial institutions an earful for helping Greece avoid the Maastricht criteria to join the euro, was back on the podium last night... This time she's slamming the market speculation against the euro, saying that "financial institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere." Way to Go Angela!

This is just what the euro needs folks... A Champion! Hey! It worked for the dollar back in 1995, when Robert Rubin became the dollar's champion... And it could certainly work here... Although, I doubt that Angela Merkel has the same pipeline to the Treasury and Central Bank like Rubin supposedly did.

I looked up yesterday from performing my "daily job" and noticed that Gold, which had rallied overnight, had given up that gain, and was now in the red... I tried to find a story that would explain this move, but was unable to locate one. The only thing I could find was a stupid story from the World Gold Council who wrote that China isn't a "realistic candidate" to buy Gold bullion from the IMF...

Hmmm... They didn't say why they thought that... And that always bugs me to no end... To say come out with such a bold statement and not say why they thought that way... Hmmm!

Now... Here's some comforting news... Remember Kenneth Rogoff, the former head of the IMF? Well, he's now at Harvard... And claims to have predicted the failure of the big U.S. Banks in 2008... Now, he's saying that he's predicting that we'll see a "bunch of sovereign defaults, in a few years." UGH! Now that's not something you want to snuggle up with on a cold day, with a hot drink in one hand and a good book in the other!

To offset that... I'm hearing rumblings of a very good Budget announcement from Canada next week... It seems that right now the thinking, or the rumors are that Finance Minister Flaherty won't include any new tax or spending measures in his budget, and offering a plan to cut deficits by reducing the rate of spending growth... Now... That's the stuff that good economies are made of!

Oh! And look at that... The Canadian dollar / loonie is cheaper today than yesterday... Wink, wink...

One could easily say the same about Gold, which is cheaper today than yesterday...

Well... The thought that's going around the markets today, is that the now... The Fed is going to keep rates unchanged for some time again... A Change of Heart if you will! Recall, last week, the markets were all lady ga-ga about the 1/4 point raise in the Discount Rate... And traders were lining up to buy dollars on the thought that the dollar would soon boost a higher interest rate... But, now that the dust has settled... They don't think that any longer! UGH! These guys give me a rash!

It's this way one week and the other way the next week... It's risk on one day and risk off the next day... Could we please have a direction and stick with it? Please?

When I came in this morning, and began writing, I said the "higher yielding" currencies were a bit stronger... Well, that's gone to the side of the road now... And the they've lost that "edge" in keeping with the winter Olympics!

Today, the data cupboard has the S&P/ CaseShiller Home Price Index for December... And while it's supposed to fall, the fall will not be as pronounced and bad as previous months... But keep in mind here the explanation I gave you yesterday about comparing data, and so on... When you comparing new data to a set of awful data, the numbers get a bit skewed...

The Consumer Confidence for this month will print this morning too. Consumer Confidence is expected to weaken albeit just a smidgen... I know that consumer Confidence is very closely aligned with how the stock market does... Stocks haven't done great in the past month, so that explains the smidgen decline...

To recap... The currencies are trading in a very tight range, and can't seem to break out of these ranges... The data won't really get us out of those ranges today... And the thought that the Fed is going to raise rates soon is beginning to dissipate...

Currencies today 2/23/10: American Style: A$ .8995, kiwi .70, C$ .9570, euro 1.3575, sterling 1.5410, Swiss .9255, European Style: rand 7.6915, krone 5.9110, SEK 7.2125, forint 198.65, zloty 2.9240, koruna 18.9660, RUB 29.99, yen 90.90, sing 1.4090, HKD 7.7615, INR 46.23, China 6.8265, pesos 12.81, BRL 1.8110, dollar index 80.71, Oil $78.83, 10-year 3.78%, Silver $16.15, and Gold... $1,109.30

That's it for today... I've got a visitor here with me this morning, so this is a little shorter than usual today. I'll explain later this week, as I file a report from the road... That's right... I'm outta here today, heading toward, what I sure hope is warmer weather in the desert! I'll be back in the saddle next Tuesday... And until then, Chris will have the conn on the Pfennig! The trading desk was a buzz yesterday about the U.S. men's hockey team and the game against Canada on Sunday night... Not the "miracle on Ice" but... Close, eh? OK... I've got to get this out the door, I sure hope you have a Terrific Tuesday!

Chuck Butler


EverBank World Markets



Posted 02-23-2010 7:57 AM by Chuck Butler