Commodity Currencies Follow the Euro Upward

Yesterday, I told you how the currency rally had the brakes applied by a return to the European debt crisis focus… Yesterday’s trading was different, though. It was as if traders never heard that the US and the IMF were putting together a line of credit for Spain, for they began marking up the euro (EUR), and selling dollars, as if it was June of 2009! (You may recall that in June, last year, the dollar was on the slippery slope once again.)

So… The euro inched higher and higher on the day versus the dollar, and overnight? Well, there was no profit taking, no consolidation either; it was just plain unadulterated dollar selling! The euro is once again trading near 1.24… The focus on the European debt crisis was put on the back burner this morning, when news of a successful Spanish auction filtered through the markets.

But, just like the “old days” when the Big Dog, euro, would get off the porch to chase the dollar down the street, the little dogs would pass the Big Dog up… And so it was with the Canadian dollar (CAD), Swiss franc (CHF), New Zealand dollar (NZD), and even the Aussie dollar (AUD) got to run a bit!

Let me tell you what put the tiger in the Swiss franc’s tank… The Swiss National Bank (SNB) left rates unchanged yesterday, but they tried to sneak the sun past the rooster, by not mentioning what has been a staple of theirs for some time now, and that is… They didn’t mention the need to stem currency appreciation! WOW! It was like an Oklahoma land rush… No Sooners, though! Currency traders, and investors that were scared of SNB intervention, were given the green light to buy the franc.

Now… Let me set this up for you… The SNB didn’t want currency appreciation, previously, because they had deflation in their economy, and they figured that a weak currency would give them the inflation they needed to rid themselves of deflation… Well, I guess it worked, because deflation in the Swiss economy is gone. Poof! Just like that… Gone! So, now, the SNB will be fighting inflation, and what better tool to have at your side as you begin to fight inflation, than a strong currency!

Right behind the franc’s strong move was the move by the Canadian dollar/loonie. The loonie got some wind in its sails with the price of oil continuing to move higher… Yesterday, oil was trading with a 76-dollar handle, this morning it has a 77-dollar handle. Gold is also trading higher this morning, so the loonie has both sails catching wind this morning!

Here in the US yesterday, we saw the color of the latest Housing Starts data, and it was NOT good! Housing Starts for May fell 10%, and April’s figure was revised downward… Uh-Oh! Is this the beginning of what I’ve said I thought we would experience here and that is, a double dip in the housing sector, with home prices falling another 10%? Difficult to say with only a smidgen of data to view, so we’ll have to keep watch of all of the housing data closely.

Industrial Production and Capacity Utilization were good data prints yesterday, so it wasn’t all “bad stuff” for the US economy. The PPI (wholesale inflation) report was interesting… The Producer Price Index fell -0.3% in May… Huh? Year-on-Year though the index is up 5.3%…

Today, is the stupid CPI report, and as usual on Thursday, the Weekly Initial Jobless Claims… Jobless Claims will most likely remain around 450,000, and that, my friends, is a very telling picture of how our economy is doing… Don’t listen to the pundits on cable news that don’t deal with the truth, and follow the President around like a puppy follows his owner! An average of 450,000 jobless claims each and every week now for 30 consecutive weeks, which followed about the same amount of time that the average was over 500,000 each and every week!

And here’s another thing that’s a HUGE problem for the economic recovery folks to deal with… Money.cnn reported last night, “Most borrowers who have had their mortgages modified through a government-sponsored program will re-default within 12 months, according to a report released Wednesday.

“Between 65% and 75% of loans that are modified through the Home Affordable Modification Program but not backed by the federal government are likely to go bad, according to the report released by Fitch Ratings, a NY-based credit-rating agency.”

WOW! Or more appropriately… OUCH!

I came across a story online on Tuesday that I forgot to talk about yesterday, so here it is… Dennis Gartman was asked if he thought gold was in the midst of a bubble… Mr. Gartman’s answer was interesting… He contends that: “we are not in the midst of a gold bubble”… He then gave some data on enthusiasm for gold, and pointed out that it was nowhere near “bubbly.”

So… We’ve got that going for us, eh?

Then there was this… If the mortgage default story didn’t tick you off at the government, this sure will… CNBC is reporting this morning that: “More than 90 US banks and thrifts missed making a May 17 payment to the US government under its main bank bailout program, signaling a rising number of lenders are struggling to meet their obligations.”

Great… Just great! You know what’s coming from that, don’t you? Of course you do, that is as long as you weren’t living under a rock the past two years! More stimulus, more bailouts, more taxpayer agony, and more debt… Brother! Can us taxpayers catch a break for cryin’ out loud!

To recap… The Spanish auction of debt went off just fine overnight, and that has boosted the euro, which is nearing 1.24 again. The Swiss National Bank didn’t talk about stemming currency appreciation, which gave the green light to traders and investors looking to buy the franc without the fear of SNB intervention. And the Canadian loonie is gaining ground again with the price of oil rising, and gold back on the rally tracks…

Chuck Butler
for The Daily Reckoning

The Daily Reckoning