Waiting On The ECB

Good day. Well, today is the day we’ve all been waiting for. No, the NCAA Basketball Championship Brackets haven’t been announced! Instead, we have the ECB meeting as I’m typing my big fat fingers to the bone!

Yes, the ECB is meeting this morning, and as we drew closer to this day, everyone wanted to jump on Chuck’s rate-hike call bandwagon! However, I said the ECB would hike in March, a long time ago – back when everyone thought I was just a little bit crazy. There was no way the ECB would raise rates, the German economy was dragging along, and all that other stuff, but that’s not what I was thinking. The ECB’s top mandate from the Maastricht Treaty is to provide price stability, and with the price of oil moving higher (even though recently it has backed off), inflation would become a problem without the rate hikes. So, there you go!

The thing that I think is important in today’s meeting is the press conference that follows. Here, Trichet (ECB President) can really gain some credibility with the markets, which will go a long way toward underpinning the euro. I look for Trichet to really come through on the Hawkish side, along with a glowing report on the rebounding economy. We shall see. This will be out the door before the announcement is made, so I’ll have to report on it tomorrow.

The currencies range traded all day yesterday, with a slight sell-off around the London closing, only to see currencies like the euro and the Aussie dollar rebound from that sell-off in the overnight sessions of Asia and Europe.

The highlight of the day came around noon, when the Canadian dollar/loonie finally traded above the 88-cent level. This is huge! What next? Will the loonie be par with the greenback? Ahhh…not so fast there, Timbo! First of all, I’m really surprised that the loonie traded past 88 cents this fast, especially after posting a not-so-flattering GDP report that I told you about yesterday. I would think that there is to be a ton of profit taking coming very soon. So, as I’ve been saying for some time now, I would look to buy the loonie only on the dips.

The highlight overnight has been the Thai baht. The baht hit a one-year high overnight, when it was rumored that a Singapore state-owned investment agency, Temasek Holdings, was selling dollars for baht. I overheard a conversation on the desk yesterday with a customer, and had to intervene. Here’s what I had to say when I heard the subject of Political pressures being discussed, “Everyone keeps preparing for political turmoil, but the baht is resilient. Political turmoil will only provide short-term weakness in the baht, which provides buying opportunities!”

Precious Metals continued their rebound from last week’s sell-off, with gold hitting a three-week high before settling in a bit lower on profit taking. Silver really saw some strong buying when it was reported that a strike at a mine in Mexico was happening. Supply problems here can be a real problem, and this problem in Mexico really points that out!

It’s coming – A big announcement…

The Chinese renminbi moved higher versus the dollar, last night. While I’m always the first to tell you that you should never, ever, think that a currency is a one-way bet, the renminbi seems to be the closest thing around. The currency has moved a total of just less than 3% versus the dollar, including the 2% move on July 21st, when the peg to the dollar was dropped. So, it has not even moved another 1% since then. However, it is moving, and I still believe that it will trade around 7.50 next year, which would provide another nice chunk of a gain. So, patience is a virtue with renminbi, but at least it’s moving in the right direction – almost daily!

This morning, yet another good economic report from Germany this morning has provided some strength to the euro. German machinery orders rose 25% in February from January, and all the demand was not from foreigners. No, a large piece came from German companies! So, domestic demand is strong and that bodes well for the German economy. I liked what Bill Bonner had to say about Germany yesterday in his Daily Reckoning. Here you go:

“We have come to Germany for a business meeting. What always amazes us is how prosperous the place seems, even after years of sluggish economic growth. From reading the paper you would think Germans were rummaging through trashcans for breakfast and standing in long lines begging for work.

“Not a bit of it! Up and down the Rhine Valley, the buildings are spanking new, the streets are spotless, and near as we can tell, the taxicabs are all Mercedes.”

The rebound in precious metals that I talked about above and the screaming loonie, have given the other commodity currencies – mainly Aussie and kiwi – some strength. With all the holders of kiwi trying to get the best price then can before moving on to another currency, this stronger move really helps!

So, today is a good day for the currencies – good news all around. I’m still waiting for the ECB announcement, so I guess I’ll just head to the big finish!

Currencies today: A$ .7470, kiwi .6670, C$ .8820, euro 1.1945, sterling 1.7490, Swiss .7630, ISK 65.60, rand 6.14, krone 6.7070, forint 212.11, zloty 3.1610, koruna 23.7220, yen 116.05, baht 38.60, sing 1.6170, China 8.0366, pesos 10.46, dollar index 90.13, silver $9.80, and gold $564.40

That’s it for today. In case you didn’t notice, or missed the hints lately, EverBank is going to make a big announcement regarding an investment product. I think it will come this weekend or on Monday, and as promised, Pfennig readers will be the first to know about it! So, look for that news coming to a computer screen near you! Have a great Thursday!

Chuck Butler
March 2, 2006