Friday the 13th for the Dollar?

Good day… And a Happy Friday to one and all! It’s a Friday the 13th to boot! Not that I get into any of that stuff, but I turned on the screens this morning to see the euro above the 1.35 handle, and thought, “Could this be Friday the 13th for the dollar?” Geez Louise, here I go again with this new laptop they made me take. It’s so slooooowwww that I can’t even see what I’m typing on the screen. I can’t work like this. Somebody needs to get this corrected before I throw this out the window!

OK… I’ll calm down now.

So, as I said above, the euro has moved past the 1.35 handle. No, it has screamed past the level! There are a few things weighing on the dollar this morning: 1. The markets believe that the trade deficit, which prints this morning, will have shown a widening, 2. The protectionism talk is heating up, and as I’ve told you since the steel tariffs where first put in place during the first Bush Administration, protectionism does NO good to a country’s currency! 3. G-7 begins their meeting today, and who knows what (if anything) will come out of it, but the markets have to at least be apprehensive of what might happen at the meeting. 4. European Central Bank President (ECB) Trichet was on his game yesterday, letting the markets know that more rate hikes are coming for the Eurozone, which means the yield differential the dollar enjoys right now will continue to narrow.

Trichet didn’t use the “vigilant” word, so that probably means no rate hike in May, as I suspected earlier – waiting, for June. But he did tells us that rates were still “accommodative” and that growth in the Eurozone will continue to run hot. So he didn’t exactly move the euro higher, but he didn’t really do any damage either!

So… With the Big Dog (euro) barking loudly, and chasing the dollar down the street, the rest of the dogs can get off the porch and run too! Sterling is trading toward 1.99. Swiss francs are running too. Two of my fave “euro alternatives” Norway and Sweden are really moving higher versus the dollar too! Norway is trading well below the 6 handle for the first time in nearly a year! Good show!

As I told you yesterday the “risk appetite” has returned and the markets are hungry for high yielders! Let’s check them off in roll call here… Aussie, here!, kiwi, here! Iceland, here! Sterling, here! OK… There are more at the back of the room, but these are the darlings of the high yielders these days.

Kiwi has moved past the 73-cent handle and has not looked back! And as I shift my eyes over to the currency screens to see what’s going on, and to allow the computer to catch up with what I’ve typed… The currencies are adding to their gains! This really looks like a rout versus the dollar.

Where has all this been? I’ve been ranting about the trade deficit for years now! But, hey, it’s sort of like when your teenagers get a little older and they realize THEY were wrong, and you are the smartest person on the earth! That’s right! I was there… I was amazed at how smart my dad had gotten from the time I was 16 till I was 25. What? Did he go back to school? HAHAHAHAHAHA!

Anyway, it’s sort of like that. The trade deficit has been there all the time. So, the markets do the old V-8 commercial, slap themselves on the forehead, and say, “It’s the trade deficit! WOW!”

Not that I follow the dollar index that much, as I feel it has too much emphasis on the euro, which is why I just follow the euro! Anyway, it was brought to my attention yesterday that the dollar index was approaching the 82.25 level low it reached last year. Well, this morning it has moved below that level, indicating a fall in the dollar index to 81.98. I’m sure the chartists are loving this move!

Ok… I hear that China will not attend the G-7 meetings this weekend, as they know all too well that they have become the poster-child for the global imbalances. China knows… Schumer and Graham know… Bernanke and Paulson know… And you all know… That China needs to allow their currency to float – but that’s not going to happen. Foot dragging from Beijing is all we’re going to get… And a stronger renminbi in the end… Just not as quickly as most would want.

The Indian rupee continues to strengthen versus the dollar – I’m just at a loss as to why currency investors believe that the Chinese renminbi is a better investment than the rupee. They both have strong economies… They both have inflation problems. However, the rupee has a nice interest rate, and a currency that is not manipulated within a currency basket as the renminbi. Just my thoughts… But, shoot Rudy, the report card doesn’t add up for renminbi versus rupee.

G-7 this weekend… I used to mock the G-7 with the old Earnest line, “G-7, Schmee Seven!” But then one meeting about four years ago, they banged out a communiqué that stirred the currency markets, and yen rallied like nobody’s business! So, I always hold out some hope that the G-7 ministers will bang out another stirring communiqué!

Currencies today: A$ .8330, kiwi .7370, C$ .8820, euro 1.3545, sterling 1.9870, Swiss .8275, ISK 65.60, rand 7.20, krone 5.9850, SEK 6.8550, forint 181.75, zloty 2.8370, koruna 20.64, yen 118.20, baht 32.60, sing 1.5150, HKD 7.8130, INR 42.60, China 7.7210, pesos 11.01, dollar index 81.98, Silver $13.93, and Gold… $678.40

That’s it for today… I finally got through this! The processing actually sped up as I went along, so maybe this laptop is like me and takes a bit in the morning to get going! HAHAHAHA! It’s supposed to snow here tomorrow… Crazy! The Cardinals come back home to all this cold weather; it’s just not baseball weather! We get to go to one of our old haunts for lunch today, everyone on the desk is excited! I’ll be in Jacksonville on Monday, so Chris will have the conn on the Pfennig.

And one more thing… The Big Boss, Frank Trotter, brought to my attention the other day a website called “the NO BS website.” You know what BS stands for. Anyway… The other day, I was featured on the NO BS website… That’s right! Time to hit send, so have a great Friday the 13th, and weekend. Hope it’s warm where you are!

Chuck Butler — April 13, 2007

Chuck Butler is the senior vice president of EverBank World Markets. He oversees the trading desk and operations for over 12,000 individual and corporate clients, both in the United States and abroad, who look to EverBank for FDIC-insured World Currency Deposit Accounts, and Single-Currency and Index CDs .

Chuck is the author of The Daily Pfennig, which is reposted here at The Daily Reckoning. His respected analysis is frequently quoted in or referenced by: the Wall Street Journal, U.S. News and World Report, CBS Market Watch, USA Today, CNNfn, the Chicago Tribune and many other publications.