Tanigaki Pulls The Rug!

Good day. Well, I warned you yesterday that this would be later. I even got up earlier than usual, but had to catch a plane to Atlanta, where I now sit in my hotel room before heading over to the conference. This will be shorter than usual, as I’m late, I’m late, for a very important date!

OK. The currencies have backed off their run at the dollar in the last 18 hours, and it’s all due to Japanese official Tanigaki, who told the media that the markets have misinterpreted what G-7 said. He claims that they are not calling for the Asian currencies to increase versus the dollar. UGH! I don’t know what Tanigaki was smoking when he read the G-7 comments. His interpretation is wrong! Unfortunately, traders have taken this opportunity to book some big profits on the gains made in the last 10 days of trading!

As Chris Gaffney said so eloquently last week, “The currencies have had a strong run, and it’s time to expect some profit taking or a brief pull back. If that happens, use it as a buying opportunity.” I agree! As I’ve said before, this is not a crying opportunity; it’s a buying opportunity!

The Bank of England left rates unchanged this morning, which was widely expected, and so did the ECB. However, the ECB president is tossing and turning in his sleep right now. He wants to talk hawkish about rates going higher, while trying to keep the euro from skyrocketing to its previous highs of late 2004. I think Trichet should use a stronger euro as a tool to help fight inflation, along with higher interest rates. As I’ve told all the grasshoppers in the past, a strong currency can go a long way toward fighting inflation!

All the central bankers are out in force trying to keep the floodgates from breaking wide open regarding their respective currency strength versus the dollar. Even The Bank of Canada’s Governor Dodge was quoted, last night, saying that he doesn’t believe the loonie’s rise is justified. Memo to Dodge: It worked; you talked the loonie down one cent, but what will you do for an encore?

Ashish Advani, our Corporate FX guru, who used to live in Canada, tells me that there’s always a chance that Dodge cuts rates to curb the loonie’s rise! What? That would be craziness, man – crazy! But, I’m told it’s happened in the past, and with Canadian companies all crying in their Molsons because the loonie is too strong, you never know what games a central banker will play!

However, I believe this is all a tempest in a teacup. It will all settle down after some water has passed under the bridge, and the markets take their profits, form new bases, and then prepare for the next leg up versus the dollar!

So, on your way; there’s nothing to see here.

Oh, looky what we have here? Another bounce! While I was writing this, the currencies have taken a super-ball bounce! OK. I know that some of you will say, “Aw, Chuck, you just did that talk at the beginning so you could look good! OK, I didn’t do that, and I have Chris Gaffney here to prove it! Besides, it would take a lot to make me look good!

The currencies, like they have done repeatedly over and over again during April, and now the first part of May, are seeing some strong data in the United States. They hear some dolt politician and sell off a bit, then rebound strongly! Yahoo!

So, lets head to the big finish on that great note!

Currencies today: A$ .7715, kiwi .6425, C$ .9033, euro 1.2660, sterling 1.8455, Swiss .8110, ISK 71.50, rand 6.06, krone 6.13, forint 205.50, zloty 3.01, koruna 22.37, yen 113.50, baht 37.70, sing 1.5770, INR 44.82, China 8.01, pesos 10.96, dollar index 85.76, silver $14.12, and gold $675.60

That’s it for today. Wow! What a comeback! I’m psyched! Well, it’s time to report to the conference hall, set up the booth, and get the show on the road! Chris says hello to everyone! Have a great Thursday!

Chuck Butler
May 4, 2006

The Daily Reckoning