05/12/10 St. Louis, Missouri – Yesterday was a change in the weather for the currencies, as we saw a very tight trading range with no wild swings up or down, which has been the routine for a month now. The euro traded in a range of 1.2675 to 1.2740, going back and forth all day… This morning, as I turn on the screens, the euro (EUR) is at the bottom of that range.
Europe got some good news for once in a blue moon this morning in the form of two strong economic data reports… First, the Eurozone economy expanded faster than forecast in the first quarter, growing 0.2% (0.1% was forecast)… I know, that doesn’t sound like much, but given what’s been going on in the 16-nation union, and the fact that government spending isn’t pumping the economy up, I think 0.2% is probably a good number for the Eurozone right now.
In addition to GDP… The Eurozone printed a strong Industrial Production number of +1.3% in March. I’ll tell you this, folks… For an export-led economy like the Eurozone, which is dominated by Germany’s exports, a cheaper euro is just what the doctor ordered! So, while euro investors aren’t happy right now about the euro’s drop this year, think about the BIG PICTURE… If a cheaper euro drives the Eurozone’s economy stronger, then once we get past this mess we’re in right now – and we will get past it – a stronger economy will demand higher interest rates, and that should be the medicine the euro needs to get back on the rally tracks.
Now… Does that happen today? No… Does it happen next week? No… Shoot Rudy, “it” may not ever happen… But it’s how I see this working out, and it will take time… It’s like learning to fly for the Eurozone economy…
The BIG story overnight (and I’m sure you’re wondering why I waited until now to write about the Big story overnight) is… Gold has blown past its previous all-time high of $1,226… The shiny metal is trading around $1,241 this morning… A huge move, I would say! Gold flirted with the all-time high figure all day yesterday, leading me to believe the all-time high was probably a strong resistance level… But, just like every other asset class, once it trades through the strong resistance level, it gaps higher…
Now, we have to see if: 1. Profit-taking comes around once NY traders arrive at their desks and see this move, or 2. The gold price manipulators step in…
And for now… The dollar-yen-gold alliance that held tight for the last week, seems to be broken… The risks that are inherent in the Eurozone debt crisis, are fueling this demand for the safe haven of gold… Not trying to sound like Gordon Liddy in his TV commercial that airs about 100 times a day…
And… Speaking to a crowd from a place he knows all too well… Fed Chairman Big Ben Bernanke, called the $1 trillion European rescue package no panacea… I chuckled when I read that… Not that it’s funny… It’s just that it’s kind of like the kettle calling the pot black…
OK… Speaking of the Fed… I was very disheartened yesterday when I saw the results of Ron Paul’s audit the Fed bill… It has been gutted, folks… That’s so sad… I thought for once we would reveal to the world the cartel that the Fed really is… Instead, it was reduced to a “one-time audit” of the $2 trillion in payments that the Fed made during the financial meltdown. Here’s the great congressman from Texas in his own words, talking about the gutted bill that turned into something else…
“While it is better than no audit at all, it guts the spirit of a truly meaningful audit of the most crucial transactions of the Fed,” Mr. Paul wrote on his website. “In fact, rather than still calling the Sanders Amendment an audit, maybe it should instead be called more of a disclosure at this point.”
“The new language of the Sanders amendment requires a one-time disclosure from the Fed,” Mr. Paul continued. “Basically, their sins of the past would be revealed and Americans would know more about who got bailed out by the Fed and under what terms. This would be good, but it’s not nearly enough.”
I agree completely… Big Ben, Big Al Greenspan, and all the Fed Heads are breathing a sigh of relief this morning…
The UK finally has a new government today… That should help the pound sterling (GBP)… But not bring it out of the woods by any imagination!
And in Spain… Prime Minister Zapatero announced a new set of budget measures to the parliament, which shows the Spanish government saving 5 billion euros this year, and 10 billion euros next year, by making deep cuts in public spending… Well… This is good news, sort of… You hate to see them have to make these cuts, but, truthfully, this is exactly what they need to do, and more of it… Soon!
Yesterday morning, after I signed off, Australia’s budget was presented… Australia presented a plan to bring their budget to a surplus three years ahead of forecast… The budget surplus is expected now to be in the 2012-13 fiscal year… Their budget deficit is currently $40 billion… This projection is based on the tax on miners profit that I talked about a week or so ago…
And… Of course the hopes that China continues to demand raw materials from Australia…
I know, I know… There are quite a few “big name” economists and analysts out there calling for a marked slowdown in China… But, I’m from Missouri, and I’ll have to be shown that slowdown…
Speaking of budget deficits… We just happen to have the US Monthly Budget Statement due to print today, along with the Trade Deficit… The Budget Statement is for April, and the Trade Balance is for March… Both are not good, folks… To have this twin deficit slapping you in the face each month is just not the thing that bodes well for our future.
Then there was this… Remember me telling you how I believed that house prices would take a double dip, and that the recovery in housing was a house of cards? Well… I saw this story in the USA Today…
“Housing prices in the US might slip into the second part of a double-dip downturn, experts said. Data from the National Association of Realtors indicate that the housing rebound is losing steam, while CoreLogic, a real estate analytics firm, forecast that prices will be 4.2% lower by February.”
Hmmm… Nice to see that they’ve come around to seeing things the way I see them! Too bad it took them so long to see, though!
To recap… The Big Story overnight is that gold has blown past it’s previous all-time high, and is trading all the way to $1,241 this morning! The euro was traded in a tight range for once in a blue moon yesterday, and Spain and Australia have announced measures to cut their budget deficits…
Chuck Butler
for The Daily Reckoning
Chuck Butler
Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter, which is reposted here at The Daily Reckoning. With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News and World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune. Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.
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Can you connect the dots?
Gold is rallying because people fear that the Euro will actually collapse. Investors are not bothered about it just weakening, but about it bombing out of existence.
To talk about a recover for the Euro, will tell Rudy not to get his hopes up.
The gold price manipulation theory is the most crackpot thing i ever heard. No serious commentator would even take this seriously. Firstly, who are they? What would they have to gain?
Do you think it’s some rogue trader caught short the metal and trying average into a losing position. No? Central bank perhaps? Laughable.
In any case why would you even mention such a thing when the trend is clearly Rising and prices are at record HIGHS. Oh perhaps they’re “manipulating” the price higher. Right so whenever speculators are on the wrong side of your views it’s called manipulation. Excuses!