Focus Shifts From FOMC To Greek Drama

Today’s Pfennigfor your thoughts…

Good day.  And a Happy Friday to one and all!

The dollar didn’t remain in its banks yesterday, after being brought down by the Fed’s no rate hike decision on Wednesday. The dollar rallied back overnight, to end the week with a better feeling for the dollar bugs. With the FOMC meeting out of the way, the markets quickly shifted gears, and returned to the Greek drama. The Eurogroup and Greece met yesterday, and made no progress on an agreement.

Greek PM Tsipras continues to talk about how a deal can be done very easily, while the Germans continue to talk about how uncooperative he’s been.

This is all games being played.

These negotiations won’t get down to the cheese that binds until we come to the end of the month, for that’s when Greece has to pay the IMF for the 4 loan payments that were due during the month, that Greece got the IMF to roll all up into one payment. The IMF has already told Greece there will be no wiggle room on when the payment is to be made.

So, it’s down to making the payment, with aid that was negotiated through an agreement, or not making the payment.
This morning, I can only see one currency that is on the positive side of the ledger vs. the dollar; it’s the Chinese renminbi, which was allowed to appreciate overnight for a second consecutive session. Gold is flat, to down a few pennies, and the euro, which is feeling the heat of another session without an agreement, has lost 1-full cent from yesterday’s level.

The dollar didn’t get any help from yesterday’s data, not that it was bad, it just wasn’t good either! Since I mentioned U.S. data, I might as well go through the details, eh?

The U.S. data cupboard was another mixed-bag-o-data yesterday, as the 1st QTR current account deficit wasn’t as large ($113.3 billion) and expected ($117.3 billion), as if that’s a major change for our debt!  The stupid CPI was not as high as expected, printing at 0.4% instead of 0.5%, but the year on year number fell to 1.7% from 1.8% in April.

If the Fed actually looked at CPI, they would be heartbroken this morning, as it appears they will never reach their 2% target for inflation!  The Philly Fed business optimism and leading index were both stronger than expected, so that was the good of the day.

The Bank of Japan (BOJ) met last night, and kept all monetary things unchanged. But in the press conference afterward, BOJ Gov. Kuroda, –who you might recall stroked a rout on the dollar last week by talking about how the downward move in yen was too overdone, and had been too far, too fast– was all tail between his legs when he told the audience that “he had no intention of specifying currency levels or speed of moves and that he can’t say a weak yen is negative for Japan’s economy.”

Hmmm… what a bunch of crock!

He did too mean to specify the FX moves in yen. But I guess that was before he got the memo from his boss the Finance Minister, who then answers to Prime Minister, Abe. Ahhh, that’s right, one of Abe’s ideas in his 3 arrows was to weaken yen to promote growth. See how this all ties together now? And yen has not yet given up the ground it gained after the Kuroda speech last week, so I guess the media didn’t want anything to do with his mea culpa last night!

The Norwegian krone has really taken the Norges Bank rate cut like a shot to the midsection. The krone has had the wind knocked out of it, and I don’t see it getting to its feet any time soon, for it wasn’t just a rate cut by the Norges Bank, it was also the damaging talk after the rate cut announcement that has the krone down for the count.

The Norges Bank is probably smiling like the cheshire cat, and now that they see that they can move the krone with words, they’ll probably keep coming back to spew more words. So, batten down the hatches here folks, this once prudent central bank has gone rogue on us. UGH!

Like I said above, gold is flat to down a few pennies this morning, no big shakes. The shiny metal did climb back above $1,200 yesterday to $1,203. But nothing has changed here, folks. Gold is waiting for inflation to take off, or a black swan event to scare everyone back to the safety of gold before it makes its next move.

But just to be fair and balanced on this — remember when I told you two years ago that Harry Dent said that gold would fall to $750?  Well, now he says that gold will be $250 by 2020. I’m sure that’s a misprint. What? What’s that? It’s not a misprint? WOW!  Pretty strange that he would make that forecast now, especially with the world in a tinder box that contains wars, nuclear proliferation, exploding debt, social unrest, and government defaults.

Gold researcher extraordinaire, Koos Jansen, wrote in his posting on that:

…the Bank of England has recently released its annual report in which it’s disclosed the gold held in custody for a range of customers was 5,134 metric tonnes on February 28, 2015, down 351 tonnes (6 %) form the previous year.

Koos Jansen then goes through all sorts of numbers as to whom owns what, and so on, and comes to a number that he believes is pretty close to being accurate, and that is that there is an estimated 3,238 tonnes of floating supply of gold in London. That’s good to know, given that China has been importing more than the World’s production the past few years.

The price of oil dropping from the week’s high of $61.18 on Wednesday, down to today’s $59.82, hasn’t helped the krone, or the Canadian dollar/loonie, the Russian ruble, or Brazilian real either. But there’s always bad U.S. data next week that can lift these currencies out of their doldrums they are experiencing this morning.

There’s no data in the U.S. data cupboard today, not one piece of data, but that all changes next week. And on Tuesday, we’ll probably see a negative print for durable goods from May, and a very weak capital goods orders. So, it’s just a couple of days of trading to deal with the renewed dollar buying. At least that’s how I see it, and I could be wrong, of course!

I put the finishing touches on the monthly client only newsletter called the Review & Focus, this week, and as always, they come back to me with questions about the stuff I write. Hmmm. But one thing I did highlight, and will tell you about as a “teaser” now is “The dollar continues to hold the edge over the currencies and metals, but I have to wonder for how much longer? We’re in a bind, and we’re way behind, and there doesn’t seem to be anyone to save us.

Oh, woe is me.

Which is why I believe we should remain diversified, and even pick up more diversification when we can with the prices as cheap as they are. For all this debt, all the wars, all the stimulus, and all the other ‘stuff,’ things are not going to end up well for the dollar. And, yes, that’s my opinion and I could be wrong.”

That’s it for today. I hope you all have a Fantastico Friday, and for the Dads. A Super Sunday, Father’s Day!

Chuck Butler
for The Daily Reckoning

P.S. The Daily Pfennig is first published everyday, right here.

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