Waiting On Trichet and Trade Date
"The realization that the trade deficit isn't getting any better any time soon, has traders returning to the overall bad fundamentals of the United States and overnight, they have begun to mark down dollars versus the yen and the euro."
By Chuck Butler
In This Issue… Rate announcements due from the BOE & ECB. Yen wins the teddy bear! Commodity Currencies make a strong move! Icelandic inflation grows.
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Click here to open your new MarketSafe Gold Bullion CD today! --------------------- And now…today's Pfennig! Waiting On Trichet and Trade Data Good day. Well, my presentation to the American Association of Individual Investors went off without a hitch last night. Thanks to Mike Meyer for coming along to help answer questions, etc. Today could be a very important day regarding the short-term direction of the currencies. First, we'll get to hear what ECB President Trichet has to say following the ECB meeting going on right now, as I type away. Recall, the other day I told you that I was leaning toward the idea that the ECB would come right back and hike rates back-to-back, due to all the constructive data that's been recently printed. But, when you think about it, that might be moving rates too fast. And although I think Trichet will give us indication that rates are going to go higher in the Eurozone, we'll probably have to be patient and play the guessing game at each ECB meeting. The other item that will garner lots of attention this morning is the November trade deficit. We'll also see the monthly budget statement or deficit as it has become. The trade deficit is expected to back off a bit from October's all-time record-high of $68.9 billion. But, in reality, this backing off is much like rearranging the deck chairs on the Titanic, or a fresh coat of paint for the front of the house for curb appeal. In other words: It's still going to be bad - probably around $66 billion. Ouch! The realization that the trade deficit isn't getting any better any time soon, has traders returning to the overall bad fundamentals of the United States and overnight, they have begun to mark down dollars versus the yen and the euro. The yen is finally trading with a 113 handle. But like I said the other day, it still has a long way to go to get to where I believe it should be trading, which is below the 100 handle. I'm reading this morning that Morgan Stanley just conducted a survey among customers and employees regarding what they believed would be the best-performing currency in 2006. The envelope please (can you hear the drum roll?). And the winner is: Japanese yen! Yes, give that currency the Teddy Bear! So, the yen has that going for it, eh? I told you yesterday that there was a report circling Canada that the Bank of Canada would raise rates four times this year, and that this information, not based on anything factual, had lit a fire under the loonie. Well, when the story is "good" then go with it, eh? That's what the currency traders have done. The loonie is back above 86 cents, and looking very healthy. Hmmm. Didn't someone we all know and love three days ago say that it was safe to get back into the water with loonies? On the election front in Canada, it's looking more and more like there could be a chance that a majority government could exist when all the dust settles. Our former resident Canadian on the desk, Ashish Advani, believes there will be a minority government formed, with the Conservatives moving into the leadership role. So, the good news is that the loonie doesn't seem to be bogged down by the back and forth of the election. So, it gives me the indication that once the dust settles on the election that loonies could really move! The Bank of England's Monetary Policy Committee is also meeting as I type away. I really don't expect them to make any moves with interest rates, so pound sterling will be free to follow the euro. After just getting back to 69 cents earlier this week, the New Zealand dollar / kiwi, is now knocking on the door to 70 cents. I told you that the selling in kiwi had been overdone. I also told you that this was on the "watch" list, and not to break CD's to get out of kiwi. The Aussie dollar is also moving higher again as base metals, raw materials, and gold continue to put wind in the Aussie dollar's sails. And while there's a nice breeze blowing, the South African rand is garnering some of it to fill their sails, too! This is beginning to look a lot like the move the commodity currencies made versus the dollar in 2004. But those lofty returns from 2004 will be hard to match. I wouldn't mind these currencies trying to match those lofty returns! The hottest currency on our books right now is the Icelandic krona. Almost every application that comes across our desks is for Icelandic krona. This morning, Iceland reported that inflation had accelerated to 4.4% from 4.1%. This outcome will put pressure on the Icelandic Central Bank to raise interest rates again. As long as the central bank is keeping ahead of inflation, and not allowing "real interest rates" to narrow, this will be good for the krona. Keep these facts in mind regarding Iceland. It has the fastest growing economy in the Nordic region. It has Europe's lowest jobless rate. It has the highest interest rates in Europe. Also remember, that this is a small country, very small, but one that I like! There was real strong talk from Swiss National Bank (SNB) Governor Roth, yesterday. Very hawkish tones, and this really stirred the pot for the European currencies. The way I look at this is like this: In the last 20 years, the SNB has followed. First they followed the Bundesbank, and now the ECB, with regard to interest-rate policy. So, if the SNB governor was out talking tough yesterday, the day before the ECB was to meet, then he must know something. And that is what got the euro on the road to 1.2145, which is where it was when I arrived this morning! Currencies today A$ .7545, kiwi .6990, C$ .8633, euro 1.2140, sterling 1.7690, Swiss .7840, ISK 60.95, rand 6.03, krone 6.65, forint 206.16, zloty 3.12, koruna 23.69, yen 113.60, baht 39.42, sing 1.62, China 8.0659, pesos 10.58, dollar index 88.82, and gold $548.25 That's it for today. This just in: The Bank of England did indeed keep rates unchanged. Tomorrow, things will close up early in the markets, as the "boys" head to the Hamptons for the three-day holiday. Yes, Monday is a holiday, which means I'll be able to stay up and watch the two-hour premier of "24" on Sunday night! As you all might recall, I'm a huge fan of "24" and can't wait for this year's show to begin! And a BIG HAPPY BIRTHDAY to my oldest son, Andrew. Twenty-four years ago, we were having a snow storm! Have a great Thursday! | 
