Archives: 2008 January

The US Dollar, everyone’s candidate for a total collapse, may in fact be showing signs of a reversal.

I admit that I can not think of any good reason, well maybe one scary one which I’ll get to in a moment, for the Dollar to strengthen. Yet when you look at the charts of the Dollar against the majors you see that indeed the Dollar has shown a surprising amount of strength, except against the Japanese Yen.

The most notable turnaround has been against the British Pound. The UK retail sales figure for December announced yesterday, knocked the stuffing out of the Pound taking it very quickly 200 pips lower. A quick look at the daily chart will show you that the Pound peaked at 211.62 on Nov. 11,2007 and closed yesterday, Jan. 18, 2008 at 195.55. The weekly charts have all turned down and it looks like there is a lot of room to the downside. 188.92 is the current 40 week moving average.

The euro peaked at 149.68 on Nov 23, 2007 and closed yesterday at 146.21. A look at the daily chart seems to indicate that the Euro has put in a nice double top with the second peak reached on Jan 15 at 149.22. While the reversal in the Euro is not as clear cut as that in British Pounds it certainly looks like we have seen the highs in Euro for some time.

The British Pound Sterling seems to be as every much as sick as the US Dollar.

And why not? It seems that our British cousins have their own subprime mortgage crisis, raising credit card debt delinquencies, slow down in the economy, and troubled housing market to deal with.

After trading as recently as November 2007 at 2.1000 the Pound headed south and closed on Friday, January 11, 2008 at 1.9570. That’s a pretty dramatic reversal, especially during a time period when the US Dollar has been so weak.

It seems that over the past few years the British have been as credit crazy, perhaps even more so, than their American cousins. Now that lenders want to be repaid by borrowers who do not, and in some cases, never did have the ability to repay, the cousin’s currencies are sick together as financial markets on both side of the Atlantic sink under the weight of massive losses and writedowns by financial institutions.

Selling every rally in Pounds has been a profitable play over the past few months. I expect that as long as the credit crisis is overhanging the financial markets, which will likely be for at least all of 2008, the Pound will continue in a downtrend.

However, the Pound is especially volatile, so trading Pounds is not for the faint of heart. The long term trend may be down but the daily price action has a lot of sudden reversals and whipsaw action that can make one question ones position.

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The Non Farm Payrolls (NFP) Data Hits the already weak Dollar hard as 2008 gets under way with a bang.

On Friday, January 4th, 2008 the US Commerce Department released the Non Farm Payroll (NFP) report and the AP reported afterwards that “The unemployment number jumped from 4.7 percent in November to 5 percent in December, the highest since November 2005 after the Gulf Coast hurricanes dealt the country a mighty blow. Payrolls – both private and government – grew by just 18,000 last month, the worst showing since August 2003, when the economy suffered job losses as it struggled to recover from the 2001 recession.”

The stock market responded even before the opening as the futures market index sold off immediately after the NFP report. By the end of a rough trading day the DJIA lost another 256.54 points only to be outdone by the NASDAQ in percentage terms. The NASDAQ was down 98.03 points to 2504.65, a jaw dropping, bone jarring, bull disturbing 3.77%. For the first week of the new year the Dow dropped 4.2% and NASDAQ was down by 6.4%. The Year From Hell is underway, investors.

The Federal Reserve Bank immediately came under pressure by concerned Wall Street citizens and big political donors to further reduce interest rates. Most talking heads were crying for a 50 basis point cut at the next FOMC meeting set for January 30th.

The Japanese Yen starts the New Year with a bang as it follows the Chinese Yuan on a fast course against the Dollar.

The Yen was trading about the 114.00 level on December 27. Today we are at about 108.40 two hours before the New York stock markets open. The Chinese Yuan continues to gain strength and is now at about 7.30 to the Dollar.

This rapid change of levels is not just in the Yen and Yuan, The US Dollar is getting hammered against the Euro and Swiss Franc to mention just a couple of currencies. The British Pound is fading against major currencies along with the Dollar as the British economy, much like the US, faces severe problems caused by the housing market and related subprime mortgage loan market. It’s time to pay the piper for the over extension of credit.

Yesterday was a heavy down day for the Dow as it lost over 200 points. At some point, probably to be reached very soon, you can expect even heavier selling of equities as investors begin to realize that a rapid fall in the Dollar is going to cause even more problems for the US economy.

The gold market is trading at all time highs at 864 as I write and crude oil is just barely below $100 a barrel. A sharply falling Dollar will only assist those largely Dollar denominated markets to move even higher. Gold at record prices should be taken as a sign that folks around the world are losing faith in paper fiat currencires, like the US Dollar.