FOMC Dominates The Day....

Good day… Well… Today is an FOMC meeting… And it’s also the day the subcommittees meet to talk about “manipulated currencies” (yen and renminbi)… Although the markets have decided to go along with me and not expect any type of move from the Fed today, we saw a ton of position squaring yesterday ahead of the meeting… Strange, but true!

Yes, the bias yesterday was to square positions ahead of the meeting, even though no one expects the Fed to do anything… That meant the bias was to sell currencies, take profits, and buy dollars to cover short positions… At one point in the day, it looked as though the position squaring would take the euro below 1.35, but that was not to be, and by the end of the day, the euro was back to 1.3545…

It will be interesting to hear what Big Bernanke has to say this afternoon after he holds rates steady once again. I think that whatever it is he has to say, the risks to the dollar remain on the downside… Why? Well, you don’t think he would sully his reputation as an intellectual by telling us the economy is doing just fine, do you? He has already brought about some question of his intellect by saying last month that the mortgage sector was stabilizing, or something to that effect.

Hey! If the economy was doing so “great” why hasn’t Big Ben and the Fed Heads raised rates since last summer? Yes… Put that one in your pipe and smoke it!

So… I believe he’ll do a Aaron Neville and “Tell like it is”… Don’t be afraid, to let your conscience be your guide… And with that, we’ll should see dollar weakness… But, then who knows? I’m just talking about what I believe “should” happen… When you’re dealing with the Fed, you never know if they will play Bullwinkle and pull a rabbit out of their collective hats!

Uh-Oh, it looks like the rest of the world has read the Pfennig, and has woke up to the fact that the Bank of England (BOE) had it’s work cut out for it, with regards to inflation, and a 50 BPS rate hike is a possibility tomorrow. Hmmm… That’s OK… My trip out on the limb last week while in Panama to announce that I believed the BOE would hike 50 BPS, is now the “word on the street”…

But that’s tomorrow… Today, the FOMC dominates the markets…

Yesterday, Australia announced that March retail trade rose a stronger than expected at 1.1%, thus putting the year on year rise at 7.8%, the strongest annual growth in Retail Trade since 2004… Good Show!

The base metals have backed off their recent run in the past few sessions, and that’s to be expected given their strong rally. And this “backing off” has caused some slippage in the Aussie dollar, South African rand, and Canadian dollar / loonie. I think this slippage in base metals and these currencies will be short-lived, as most technical corrections do…

OK… I just experienced a near death experience for my computer… Right in the middle of typing this Pfennig, it disappeared off my screen… It was nowhere to be found, not in drafts, etc… Somehow it appeared in deleted files, and it wouldn’t let me copy it or recover it… So, this is my second version today! UGH!

Yesterday, I was telling you about Chinese renminbi and how it always seems to make these strong moves VS the dollar whenever some official visit is about to happen, or lawmakers in the U.S. start their saber rattling over the need for tariffs… Well, it occurred to me that I didn’t go into the renminbi’s performance… It’s been a long tough road to hoe, but the renminbi has gained over 5.5%, since dropping the peg in 2005… Recall, that when the peg was dropped, the renminbi was revalued with a 2.1% gain VS the dollar… So… In almost two years, the currency has gained 7.6%… It’s been sort of like a savings account (at EverBank!) if you will!

This position squaring, which has caused euro weakness is spilling over to my two euro-alternatives Norway and Sweden… But, Snoopy I don’t care what the traders do, cause Snoopy you know I love you… Yes… These two may have been weakened, but not forgotten… And I can’t help but think that these are nothing but buying opportunities!

I’m watching a Bloomie clip right now that features Clifford Bennett Chief Currency Strategist at FxMax. Mr. Bennett is telling the audience that Fund Managers are “keen to buy euros on the dips”…

That pretty much plays well with my thoughts that this “position squaring” has given us some buying opportunities…

So, before this version of the Pfennig disappears, I had better get to the Big Finish, and hit the “send button”!

Currencies today: A$.8290, kiwi .7360, C$ .9025, euro 1.3535, sterling 1.9925, Swiss .8210, ISK 64.20, rand 6.9280, krone 6.01, SEK 6.80, forint 182.50, zloty 2.7750, koruna 20.8625, yen 119.90, baht 32.70, sing 1.5160, HKD 7.8290, INR 40.9150, China 7.6920, pesos 10.8350, dollar index 81.99, Silver $13.48, and Gold… $686

That’s it for today… Attended the Cardinal’s game last night, so… Up late for yours truly… Cardinals finally got a couple of hits with runners on base! YAHOO! I’ll be heading down to the game today later this morning… Day baseball… The way it should be played! FOMC really on the minds of the market participants today… And then tomorrow, the ECB and BOE meet… Should be interesting! Time to go to work… Have a great Wednesday!

Chuck Butler — May 15, 2007

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