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It’s Not that I Hate the Dollar, But You Deserve to Know What’s Coming Next…

Chuck Butler (June 29, 2009)

Monday, June 29, 2009

Also In Today’s Letter…

By Chuck Butler The heat wave finally broke Saturday night, and we had just one of the most beautiful days yesterday that I have ever seen! That was good, because we had a backyard full of kids, and then family to celebrate my son, Alex’s 14th birthday!

Okay, on to currencies…

First of all, the U.S. data cupboard will dominate the week ahead. We’ll even see the June Jobs Jamboree (JJJ) on Thursday instead of Friday. Saturday is the 4th of July, and I guess the Bureau of Labor Statistics (BLS) isn’t working on Friday! HA!

No, seriously, they do this every now and then when the markets will be thin on a Friday before a holiday weekend. And this week qualifies BIG TIME! It will be the 4th of July!

On Friday, I left you with the currencies moving higher as traders were desperately seeking higher yields in foreign cash. Actually, I was holding my breath when I turned on the currency screens this morning. I was concerned I would see another “demand” in today’s headlines. (Possibly for dollars…)

Because that’s how it’s been lately, eh? One day we see a foreign currency “demand” and then the next day we some other “demand.” But, no such new trade direction today. Phew!

Strong Dollar vs. Weak Dollar: What’s Next…

It’s not that I hate the dollar. Far from it.

It’s just that I don’t like getting whipsawed around in the currency markets like this – especially when we all know (traders, bankers and hedge fund guys alike) that in the end, the dollar promises to fall.

It’s just that a lot of stuff will happen between now and then. We’ll see blips up and down in the dollar in the short-term…and we’ll even see analysts calling for a dollar rally.

For instance, one of the headline stories on Bloomie this morning read the “Best Currency Forecaster says the Dollar to Rise Most Since 1981 by year end.” Wow! Now that’s an interesting forecast. But, there’s just one problem. The “forecaster” believes that the U.S. recession will come to an end this year, and U.S. growth will outpace everyone else. That will make the dollar the king once again.

Now, I talk about going out on limbs all the time with my opinion/prediction on things, and this “forecast” definitely qualifies as going out on a limb!

Of course, you know me, I just don’t see it happening that way. As a currency commentator, it’s important to tell you what’s happening on both sides of the ship. But personally, I always think of “rose-colored glasses” when I read something like this.

Speaking of the sides of the ship…the Union Bank of Switzerland (UBS), the world’s second biggest currency trader, just revised their currency forecast for year-end. In short, they agree with me. They believe the dollar will be lower.

So there you go… depends on who you ask.

China’s Real Motive Behind Their So-Called “Strong Dollar” Words

Speaking of the dollar, China has once again backed off their statements calling to replace the dollar as the world’s reserve currency. Of course, that’s what the “markets heard.”

I don’t see it that way. Let’s see what you think…

The official statement says something like, “China ruled out ‘sudden changes’ to its foreign-reserves policy.”

So what’s really happening here? I wouldn’t say that China is suddenly supporting the dollar. No, China is just being China here. The Chinese are aloof, cunning, among other things.

Of course they don’t want any “SUDDEN CHANGES” in the dollar policy. They haven’t had enough time to rid themselves of hundreds of billion of dollar reserves!

(EDITOR’S NOTE: For more on this latest development in China’s latest take on the dollar, check out our special guest commentary below from Sovereign Society Investment Director, Eric Roseman – a gifted money manager with 17 years experience in beating the markets.)

My Forecast On This Week’s Central Bank Meetings…

Even with those two stories this morning, the dollar remains on the down side against the currencies. The euro has stayed above 1.40 through Friday, overnight Sunday, and so far this morning.

The euro did get a boost this morning from a report on economic confidence, as the data moved upward to an index number of 73.3, vs. the forecasted 71.

The European Central Bank (ECB) will meet this Thursday, and I do NOT expect them to make any moves with rates, leaving their internal rate at 1%. The most important thing to watch for is whether ECB President Trichet, has something to say that could move the markets after the rate announcement.

Sweden’s Central Bank, the Riksbank, also meets on Thursday this week. (There’s a ton of stuff going on Thursday, eh?) With internal rates at just .50%, I guess they could cut, but what would be the point?

Watch for Stupid Job Data This Week

So, let’s go to the data cupboard and see what else will be on the docket this week…

Today we have a couple of third tier reports, so nothing to write home about, but tomorrow… We’ll see the April S&P Case/Shiller Home Price Index. I truly expect this data to show that Home Prices continue their downward spiral. We’ll also see the Chicago Purchasing Manager report (manufacturing), and Consumer Confidence.

When we turn the calendar page to July on Wednesday, we’ll be met by the ADP Employment report, and the ISM Manufacturing Index. There’s also Construction Spending, Pending Home Sales, and Total Vehicle Sales.

Then on Thursday, which will be the “Mother of all Economic Data and Central Bank meeting days” – the June Jobs Jamboree, along with the Weekly Initial Jobless Claims.

Mark my words: This will look really stupid for the Jobs Jamboree. You see, the monthly BLS report is expected to print at -350,000. Whereas the “WEEKLY” Initial Jobless Claims will print at over 600,000 just for the week!

I know, I know, it doesn’t add up, folks. Which is one of the things I complain about, and point out, and make fun of all the time… The BLS… Need I say more?

That’s it for today… As I said above, yesterday was my little buddy Alex’s birthday. We went to breakfast, as we always do. Yesterday was also my darling daughter Dawn and husband Jerry’s sixth wedding anniversary. I felt bad after sending out Friday’s article that I had not paid respect to Farrah Fawcett, who had passed away after losing her battle with cancer on Thursday. I wonder how many T-shirts were bought and worn back in the ’70′s with Farrah on the T-shirt. They were everywhere! And this weekend, the info-commercial guy, Billy Mays, passed away.

Gotta go… It’s a Monday, so we might as well make it Marvelous, eh?
Chuck Butler

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