Top Ten Stories Of The Week!

Good day… Well, it must have been something I said yesterday, because the anti-Chuck emails are filling my mail box… Accusing me of this that and the other thing… Look… I have restrictions on specific things I can say according to the regulators… Yesterday, I wasn’t saying that On May 9th or 10th we would see Armageddon with the dollar… All I was trying to tell you is that there are storm clouds forming over the dollar from the multitude of potential market moving events those days, and one should make sure they are prepared…

The list of currencies that could potentially benefit from dollar selling is long… But as always the list is topped by the euro… Then followed by the usual suspects with Current Account Surpluses… Norway, Sweden, Switzerland and Asian currencies… The currencies which enjoy rate differentials to the dollar and will have that rate differential increased if all plays out this week won’t be far behind… Australia, New Zealand, and the U.K.

And believe it or don’t, the euro was offered (sold) last night and now resides below 1.36…. I have no idea what traders have on their minds. Let’s face it, they know all the things I pointed out yesterday begin tomorrow, and yet, they sell euros and buy dollars… To me, I would think that doing nothing at this point makes more sense than taking profits on euros… But then, that’s just me!

There was something / a note that I sent to Chris last Thursday night for Friday’s Pfennig, that he didn’t have room for, so it got left on the editor’s floor… But I think it’s something that’s important so even though it’s a little stale, it still makes sense to talk about… Here’s the skinny…

Recall the other day, went through an exercise talking about how this time the euro’s strength is different from 2004? I said that the European Central Bank (ECB) was not afraid of the big bad wolf, I mean, the euro this time, as it’s strength is helping to fight inflation.

Well… Tonight I see a story from Brussels, the home of the ECB (that is until they move to Frankfurt) here goes…. “The euro’s strong international performance is not hurting exports from the Eurozone or dampened buoyant economic growth across the 13-nation currency bloc, the European Commission said Thursday.

We are not so far receiving a negative impact in the whole euro area because of the evolution of the euro, EU monetary affairs commissioner Joaquin Almunia told reporters.

Almunia said that while the euro had appreciated against the dollar and the yen in recent months, the stronger performance was “not so important when you look at the effective exchange rate of the euro against all the other currencies in the world economy.”

He also insisted that the rise in the euro had not impacted on euro-area exports to the US.

>>>>> back to today<<<<<<

Recall last spring when the Canadian dollar / loonie was the Belle of the Ball, which ended at midnight when the Canadian Gov’t put their hands in the cookie jar, and announced a taxation system on previously untouched Canadian Royal Trusts? Well, as I’ve been saying for at least a month or two now, the loonie has been recovering, which played well with my call last fall for the loonie to need Oil to get back to $70, and Gold to $700, to see a full recovery.

Now, we have something else to add to the loonies list of reasons for recovery… Mergers and Acquisitions are adding up again… This morning, the loonie is trading at an 11-month high on reports that ALCOA has bid on Alcan Inc. Is this the beginning of the multi-Mergers we saw in 2006? Currency traders seem to think so, as the loonie is .9080 this morning!

Don’t look now, oh, OK, go ahead and look if you want, but the Chinese renminbi has traded below the 7.70 level overnight! 7.6950, is where it’s trading right now. Funny isn’t it that we always see these larger than usual strong moves VS the dollar when an event is about to happen that involves how slowly the Chinese are allowing the renminbi to gain VS the dollar? Of course, tomorrow is the day the subcommittees meet and talk about not only the renminbi but the Japanese yen as well.

I really thought that we would see 7.50 from the renminbi this year, but at the pace it’s moving that will be a tough row to hoe, eh? One thing’s for sure… If you like slow moving currency gains, the renminbi is your horse!

Pound sterling has lost the 2 figure, but I don’t feel for long… I’ve still got my colors pinned to the 50 BPS rate hike mast! I know that a 50 BPS hike is a stretch, given the choice of Central Bankers recently to opt for 25 BPS rate moves… BUT! If you listen to Central Bankers that you trust, you can get information that others might miss… For instance, Bank of England Gov. King, said last week… “policy makers must be ready to act to bring inflation down from 3.1% to back under the Central Bank’s policy of a 2% ceiling”….

Placing a ceiling on an inflation rates doesn’t do you any good if you are not prepared to do the things that are needed to keep the ceiling from collapsing! And that’s where the Bank of England is right now… The need to hit interest rates hard… And then turn the money supply spigot to allow just a trickle… If they do these things, the markets most likely will reward the pound sterling with a nice rise to 2.10…

Recall, last month when we announced our newest member to the EverBank family of structured products, the Japanese REIT MarketSafe CD? Well… It had the largest opening funding period we’ve ever had for a MarketSafe CD, and that performance was followed up last week when MarketWatch ran an article on the CD, in which they interviewed the Big Boss, Frank Trotter… MarketWatch alerted us to the fact, yesterday, that the story was one of the Top 10 most popular stories last week!

No real market moving data here in the U.S. today, so the focus will shift to tomorrow’s FOMC meeting… What do you think the Fed will do?

Currencies today: A$ .8285, kiwi .7380, C$ 9075, euro 1.3560, sterling 1.9930, Swiss .8220, ISK 64, rand 6.93, krone 5.9975, SEK 6.7750, forint 181.25, zloty 2.7650, koruna 20.83, yen 119.80, baht 32.80, sing 1.5140, HKD 7.8180, INR 40.8150, China 7.6950, pesos 10.8450, dollar index 81.81, Silver $13.41, and Gold… $686.70

That’s it for today… Great to be back yesterday, things are pretty amped up here on the desk with the currencies moving higher, the Japanese REIT CD, the Gold CD, our new World Energy CD, the hits just keep coming! Next week I head to Las Vegas for the Money Show, if you are in the area come on by the Show, it’s free! I speak on Tuesday and Wednesday next week… One more time for Chuck’s Top Ten Reasons to own Currencies and Metals! Time to go to work, so have a great Tuesday!

Chuck Butler — May  08, 2008

The Daily Reckoning