Data Week

Good day…Whew! What a great extended Thanksgiving holiday for yours truly! The weather was beautiful – a real freak of nature, for sure! Hope your weekend was great, as we head into a very busy week, data wise. And now that the euro has finally pushed past 1.30 (and even 1.31) we’ll have the added fun of watching the “boys” return from the Hamptons and see the looks on their faces when they see these lofty levels of the currencies.

Chris told you on Friday that the currencies had finally made a move to the upside, and I couldn’t help but think about the fact that thin volume had probably led to this move, as there were no sellers to take profits, and the currencies just moved higher and higher with no resistance.

The currencies are already seeing some profit taking as the NY market participants arrive at their desks and see what a great gift was left for them. That is, unless they were short the euro/yen/and other currencies! Then I say, “Serves you right!”

Thursday and Friday’s action was ignited by a prevailing thought in the markets that the Fed is finished with rate hikes, and their next move in 2007 will be a rate cut…in contrast to the rest of the world, where interest rates are still moving up. This thought really kicked the dollar in the rear, and sent it to the woodshed. But, I don’t want to spend my morning beating the dollar down (OK, well maybe I do, but I’ll refrain). No, I would rather talk about the currencies!

Over in the Eurozone, the European Central Bank (ECB) is all set to hike rates in December – which, as I look at the calendar, begins this week! With German Business Confidence soaring at a 15-year high, and exports moving along nicely, there is hope that the German economy is finally out of the recession woods. Growth in Germany will probably hit 2.5% this year…and THAT should be enough to push the overall Eurozone economy higher. Wanna take you higher, boom sha-ka-la-ka-la-ka, boom. (Admit it, you are seeing Sly Stone with the fringed jacket with his hands over his head!)

I realize that the there will be an added VAT (tax) in Germany next year, but the way I see it, the strength of the euro is simply going to take the inflation fight out of the ECB’s hands, and with confidence so strong, the tax should be more than offset.

I see that pound sterling is also kicking some tail and taking names. I just think that you’ve got to look at sterling as a strong currency, and one that (do I dare even say it?) should see the light at the other end of the number “2” tunnel. In other words, sterling sure looks like it might want to take on the 2 figure. It will be a slow grind to get there, but it sure does look that way to me. Of course the last time sterling was around this level, I said that it looked like it was going to 2, and it never even sniffed that level! So…it just goes to show you, the currency forecasting business is filled with unforeseen events…

Those unforeseen events for the dollar in 2005 have been well documented by me at every presentation I make, in our monthly newsletter – The Review & Focus – and of course, for Pfennig readers on many occasions. They are: 1. The HIA repatriation of dollars at a lower tax rate, and 2. Fed rate hikes throughout 2005, and into 2006. Those two dollar “props” have been removed, which has given the euro the ability to gain almost 11% this year, pound sterling over 12%, and don’t look now, but one of my “picks” at the beginning of the year, Sweden, (because of their Trade Surplus) has gained 15%!

OK… enough of that! What? You can’t get enough talk about the currencies gaining versus the dollar? Well…I could talk about it all day, but there are other things to get to this morning!

This is going to be one heck of a wild week with data spilling out of the data cupboard! With the dollar reeling this morning, it should feel the sting of a negative durable goods report for October. That will be followed by consumer confidence, which is a toss-up for which way this will head. If the survey board asked me, I would tell them that the only thing (economy wise) I’m confident about is the fact that the dollar is going to continue to lose ground! But then, that’s just me!

Tomorrow we’ll see a preliminary on 3rd QTR GDP, and personal consumption. We’ll also see new home sales for October, which are expected to fall even further. This list of data continues as the week goes on, but I won’t bore you with all that until we get to that bridge.

Next week, I head out to Phoenix to talk at the Wealth Masters Investment Conference. I’m going to give them my “Top Ten Reasons To Own Currencies and Metals” presentation. I’ll have to update that presentation, to show these latest currency moves!

I’m seeing more profit taking as the morning goes along here. By the time I hit the “send” button, the euro may be back below 1.31, but that doesn’t change anything. Profit taking is good for an asset after a strong two-day move like the currencies had. Also, for those of us who were busy basking in the glow of pumpkin pie, and who are just now seeing this move, it gives us a chance to buy before the currencies run away from us!

Gold and Silver are also taking liberties with the dollar, as I’ve said all along. Dollar weakness leads to metals strength. I signed off last Wednesday talking about the recovery in the base metals. So let me see if I have this right…base metals are on the rise, precious metals are on the rise, and there are still people out there saying that the bull market in commodities is finished? HAHAHAHAHAHAHAHA! What a bunch of DOLTS! Obviously, they’re not commodity bull market historians!

I happened to be on the computer last night and thought I would take a peek at the currencies trading in the Asian markets. I noticed that Aussie dollar had gone above 78-cents, and kiwi above 67-cents. Overnight, however, profit taking has taken these two below those levels. Again, not to worry, as this gives us a breather, and an opportunity.

Currencies today: A$ .7783, kiwi .6695, C$ .8815, euro 1.3120, sterling 1.9380, Swiss .8275, ISK 70.10, rand 7.10, krone 6.30, SEK 6.8910, forint 197.40, zloty 2.92, koruna 21.38, yen 116, baht 36.40, sing 1.5490, HKD 7.7760, INR 44.65, China 7.8436, pesos 11, dollar index 83.60, Silver $13.44, and Gold… $638.55

That’s it for today…Lots O’ data this week, so get prepared for some potential wild swings. How about those Tigers! Missouri Tigers that is. Beating our long time rival on Saturday should put us in a better bowl game! Starting to get our house all decorated. I just love when it’s all decorated, and lit up! We’re a host house for our neighborhood’s progressive dinner this Saturday night, so we’re decorating a little earlier than usual, which is fine with me! So…the currencies have finally broken out of their five-month range. As the Big Boss, Frank Trotter always says…Onward and Upward! Have a great Monday and week!

Chuck Butler
November 27, 2006

The Daily Reckoning