Bond Auctions Fuel Currency Rally.
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In This Issue.

* Dollar rally ends!

* Spain & Italy auction bonds.

* Gold & Silver do not participate.

* Renminbi is at 17-year high VS dollar!

And, Now, Today's Pfennig For Your Thoughts!

Bond Auctions Fuel Currency Rally.

Good day... And a Tub Thumpin' Thursday to you! The bitter cold is back here in the St. Louis area. I remember, as a young man without two nickels to rub together, and without a garage to house my car during these bitter cold days, putting a flood light under the hood in an attempt to keep the battery from freezing. Or waking up about the time I wake up now to go to work, but then it was to go out and start my car and let it run, in hopes that in a few hours it would again start. See what bitter cold does to my mind? HA!

Well. the bitter cold that was hanging over the currencies for the past week, saw some milder weather yesterday, with the bitter cold switching over to the dollar. Yesterday, I told you about how the Portuguese bond auction went off just fine, and yields actually fell in the secondary market. I said then that the news had initially put wind in the euro's sails, but could not be withstood, and the euro had fallen back below 1.30. Well, that was only for a short time, as the news of the auction filtered through the markets, adding in U.S. Treasury Sec. Geithner's comments on the renminbi. the dollar got sold. right after lunch, I looked at the screens and the euro was not only through the 1.30 handle, but was trading through 1.31, which was a good thing for the currency because. the move brought the beleaguered and beaten euro back to its 200-day moving average, which if fell through last week.

This morning, the news was even better, regarding bond auctions from the periphery countries of the Eurozone. This morning it was Spain, and Italy auctioning bonds, and both auctions went off without a hitch, and again, the yields on the bonds actually fell, which is an indication that the demand was strong!

The euro wasn't the only currency taking liberties with the dollar yesterday & overnight. The Canadian dollar / loonie traded to a 2 & 1/2 year high VS the dollar to the south of the loonie. The Aussie dollar (A$) climbed back to $.9950, and Gold traded higher, after spending most of the day flat or in the red slightly.

So.. the "flight to so-called safety" (to the dollar) was called off yesterday, and the trading looked like it was loaded for bear, with most of the losses taken by the currencies in the past week, reversed in one afternoon's trading.

And then honorable Ron Paul, one of the few lawmakers that truly understand what's going on with our debt and currency, posted a comment on his website. you can read it here. but if you don't have time, I liked the last paragraph the best, and have it here.

"It is nothing short of cruel and criminal for Congress to stand idly by while the life savings of Americans are inflated away to nothing. It is high time Congress insist on getting complete information on what the Fed has been doing, and for whom. My hope is that exposing the truth will demonstrate the insanity of the status quo and more people will call for sensible changes, such as legalizing competing currencies."

And the link to the website is here:

Unfortunately, for Gold. the rally yesterday didn't last throughout the night, and the shiny metal has given back its gains from yesterday. Makes no sense to me, except of course if you believe in Gold price manipulation, then it makes sense. And I do believe in that. Of course it could very well be profit taking. But given the story that I wrote about yesterday, regarding the tremendous demand that minters are seeing for physical Gold, one still has to scratch one's head in confusion over this selling of Gold this morning.

The Bank of England, (BOE), and the European Central Bank (ECB) both are meeting as I type my fat fingers away here. These two meetings could very well have fireworks. but most likely, they will be non-events, with little clues to the future.

The ECB starts 2011 with the Sword of Damocles hanging over them. The ECB must deal with Europe's sovereign-debt crisis as well as inflation. But there's word out of China that soon the ECB might have one less worry. China is prepared to participate in any future euro zone stabilization measures, seeing the euro as a key pillar of a multi-currency global financial system. Hmmm. if China is willing and able to supply needed depth to the stabilization fund, then that's a good thing. It's good for The Eurozone, as it could very well keep interest rates down on bonds, and it's good for the Chinese, because. They get their foot in the Eurozone's door just a little bit further in their attempt to rule the world! HA!

Yesterday, I was buying some pound sterling for a customer, and said, "Whoa! That pound sterling price is pretty rich!" As long time readers know, I'm not a fan of pound sterling, as they have the same problems we have here, only on a smaller scale. But, when the bias is to sell dollars, the currencies, even the one's on crutches, and limping along, line up to take swings at the green/peachback!

Now. after all that euphoric talk about the currency rally. I'm watching the dollar rally back a bit, with Gold really falling lower now. So, you see, currency traders are a fickle lot. and can be moved by the slightest change, which will affect their sentiment. Let's hope this rally back by the dollar was just some profit taking.

Ok. I'm back now. I had stopped for a minute to read a story. but I'm back now, and in the lost time, the rally back in the dollar does appear to be short-lived, and just a blip on the day's trading.

Yesterday, I talked about the weakening Swiss franc, and the Swiss National Bank (SNB) saw the weakening and looked at it as a perfect opportunity to bash the currency some. The SNB hasn't had that opportunity in some time, but they do now. So, the SNB came out with a statement that scared some currency traders / investors/ hedge funds into thinking the SNB could intervene and sell francs, thus reducing gains by trades, etc. The SNB said that franc appreciation was threatening economic growth. In fact, they said that the franc's gains are "posing an extraordinary challenge" to some exporters.

So. those comments caused some nervousness in those holding francs. But, quite frankly, I don't know why! The SNB tried to huff and puff and blow down the franc's house of strong currencies last year, to no avail. And I can hear the SNB chanting, by the hair of my chinny, chin, chin, I'll huff and I'll puff and blow your house down, but if franc owners just ignore them, the SNB will go back to their Children's story book where they came from!

Yesterday, I told you about the 67% increase of income tax in Illinois. Upon further review, I see that it really raised the personal income tax from 3% to 5%, which is a 67% increase. But, the ability of the Illinois lawmakers to make ends meet are still not going to be met. So. in the end, it's still bad. and it's going to get worse!

And then. the Chinese renminbi, again being hung out to dry by the Chinese Gov't right now, because the Chinese Premier, Hu, will be visiting the U.S. next week, saw another huge mark up of the currency last night, which puts the renminbi, now, at a 17-year high VS the dollar. So. when Hu visits next week, and the lawmakers and all the President's men, try to beat on him about how strong the renminbi is, he can simply point to the fact that the renminbi is at a 17-year high VS the dollar!

Now. I know that I've said for some time now that the renminbi will be the next reserve currency of the world. That's not going to happen any time soon folks. But what I'm getting at here is that if you go back to 2003, when we first began offering renminbi deposits to U.S. citizens. The IMF was saying that the renminbi was 40-50% undervalued. So, let's split the spread and say it was 45% undervalued. Well, from July 2005, when the peg to the dollar was broken, to July 2008, the renminbi gained about 20% VS the dollar. Then from July 2008 to June 2010, the renminbi battened down the hatches and rode out the financial meltdown. But from June 2010 to now, the renminbi has gained 3.4%... So, that's nearly 25% of the 45% in the books.

So when you hear U.S. Treasury Sec. Geithner, spout off about the renminbi being "significantly undervalued" like he did yesterday. is 20% considered "significantly undervalued"? Now, 45% in 2003, surely was "significantly undervalued" in my book. But 20%? I think Timmy Boy is pushing the envelope here, and going for the sensationalism of saying "significantly undervalued"!

Then there was this. and this is not good news, so if you don't want to deal with this depressing news, skip ahead to the recap. From CNN Money. Foreclosures were at a record high in 2010, and more than 1 million people lost their homes, even as notices started leveling off during the end year.

In total, there were nearly 2.9 million foreclosure notices filed during the year, according to report released Thursday by RealtyTrac. That was a record high, but just 1.7% above 2009.

It most certainly would have been higher had notices not plunged in November and December as banks halted tens of thousands of foreclosures in the face of the robo-signing scandal.

"Total properties receiving foreclosure filings would have easily exceeded 3 million in 2010 had it not been for the fourth quarter drop in foreclosure activity," said James Saccacio, RealtyTrac's CEO. "Many of the foreclosure proceedings that were stopped in late 2010 -- which we estimate may be as high as a quarter million -- will likely be re-started and add to [foreclosure] numbers in early 2011."

Chuck again.. This will continue folks, probably for years. UGH!

To recap. The dollar rally ran into Mr. Freeze, which cooled the dollar down and allowed the currencies to rally all day yesterday and overnight. The Portuguese bond auction was the igniter of the rally, and the well received bond auctions of Spain and Italy this morning, has kept the pressure on the dollar. Gold and Silver are not rallying alongside their other non-dollar risk asset brothers. currencies.

Currencies today 1/13/11. American Style: A$ .9985 (getting near parity again!), kiwi .7690, C$ $1.0125, euro 1.3170, sterling 1.5780, Swiss $1.0290, . European Style: rand 6.8460, krone 5.9075, SEK 6.7440, forint 208.75, zloty 2.93, koruna 18.5290, RUB 30.11, yen 83, sing 1.2870, HKD 7.7740, INR 45.23, China 6.5990, pesos 12.08, (the peso has really had a bee in its bonnet lately!), BRL 1.6720, dollar index 79.98, Oil $91.58, 10-year 3.36%, Silver $29.28, and Gold. $1,380.60

That's it for today. We had a nice dinner with the birthday boy (Andrew) and his lovely bride (Rachel) last night, after Alex's wrestling match, which he won by pin. That's a tough thing to do, go out for dinner, when you are trying to lose weight. But I did it. my boys made fun of me, but that's OK. Our Kristin Kuchem is on a whirlwind tour of Florida, visiting the former Bank of Florida branches that are now EverBank branches, and brining them up to date on our products and services in World Markets. She sent me a note last night, telling me that I have quite a few fans down there. She even said, "One beautiful lady in Tampa has a serious crush on you!" YAHOO! My beautiful bride would tell her, that's only because she doesn't live with me! HA! . OK. enough of that. my song of the day that I'm bopping and singing along with is: the great song by Johnny Nash. I Can See Clearly Now. So, keep warm, get through the snow, of which 49 states now have, and have a Tub Thumpin' Thursday!

Chuck Butler


EverBank World Markets



Posted 01-13-2011 2:48 PM by Chuck Butler