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The Scary Tale of Two Super-Currencies in Trouble

Chuck Butler (February 9, 2010)

In case you didn’t hear, I’ve been on the road for over two weeks now…but now I’m finally back!

Boy, was that ever a great idea that our colleague Christine had a couple of weeks ago, when she heard my schedule.

“You should take off Monday!” she said. Yes sirree Bob! That was the best idea I’ve heard in a month of Sundays! So I took off yesterday, but now I’m back in saddle.

And as you will see soon, I’m full of spit and vinegar and raring to go. So let’s get going with this Terrific Tuesday…

Front and center this morning, the non-dollar currencies have seen some healing. Traders have been selling off currencies like there’s no tomorrow (and buying up the dollar), but now it looks like foreign currencies are starting to make a minor comeback. Not much, but some…

But please keep in mind: These mini-rallies are on tenterhooks folks. They can be reversed in a New York Minute. And, now that I look back at the screens, that’s exactly what’s happening! Ugh! These turn-arounds are starting to give me a rash!

The Big Dog Has Become the “Old Sick Hound”

The euro used to be a Big Dog, full of pep and energy. But now it continues to look like an old blue sick hound that likes to lay around in the shade.

My chartist friend sent me a note over the weekend, and said that he believed the euro had reached what he called, “a dead cross.” He said this “dead cross” comes about when an asset trades below its 50-day moving average, and its 200-day moving average.

So, just to be clear, when an asset drops below its short-dated average and falls below its long dated average, chartists believe this will indicate further declines.

Well, as my colleague Evaldo has pointed out here in FX University Daily, the real crux of the euro argument lies in sickly EU countries including Greece. Everyone is holding out to see if the EU will bailout this problem child.

On that front, there is some news this morning that indicated the EU might actually help Greece out after all just to avoid a sovereign default in Greece. In my mind, this is the news that’s going to push the euro one way or the other – not any chart. We’ll have to wait and see.

There was also a story about the “P” in the “PIGS” (Portugal, Ireland, Greece, & Spain for those new to the class).

Fitch’s Head of EMEA (emerging markets) sovereign ratings gave Portugal a boost, saying that many of the comparisons made with Greece are “too simplistic” and that Portugal’s rating is significantly higher.

Again, all interesting, but personally I’m waiting to see what becomes of it all. Is this just PR to make euro seem like a less sickly dog? Ahhh grasshopper…wait and see.

What Could Spark the Apocalypse for the U.S. Economy

Okay, enough about the euro. On the home front…There was some scary stuff that came out recently about our deficit spending, eh?

Personally, I just don’t understand why our government has to keep deficit spending. Why this has to continue to go on and on like the Energizer Bunny! Think about this for a moment….

1. Most people in the U.S. want the government to stop spending so much.
2. Rating agencies like S&P want the U.S. government to stop spending so much.
3. Foreign investors, who swallow the ever increasing amount of U.S. debt, want the U.S. government to stop spending so much…

SO WHY HAVEN’T THEY STOPPED?

I’ll tell you one thing that’s on the horizon that could very well put a dagger in the government’s spending plans… And that’s if a rating agency lowers the U.S.’s AAA (triple A) rating!

As an American, I hope that I never see the day when the rating agencies drop our now stellar credit rating.

For that would bring about an Armageddon for U.S. Treasuries, interest rates, and our economy. The collateral damage would be horrendous! So, the government has got to stop before this awful thing happens to us.

On the deficit spending front, the government just spent millions of dollars advertising during the Super Bowl. Now I know that cutting the government’s advertising budget is like removing a bucket of sand from the beach.

But still, what was the point of spending money they don’t have?

Hey! When you see a hole in your budget, do you go book a trip to Hawaii? NO! You hunker down, until you have the money to book a trip to Hawaii! I bet the boys and girls at CBS were jumping with joy to receive that check!

To recap, the bias to buy dollars remains in the markets with only mini-rallies going on for the non-dollar currencies. And finally, the deficit spending problems in the U.S. continue to mount!

That’s it for today… Well, although it’s nothing like the snow they got up east last week, we did get a good five inches overnight here in St Louis. That’s always strange to be sitting outside being warmed by the Florida sun one day, and a couple days later be driving in snow! The Orlando Money Show was good… It’s always good to see my readers there. Some stop to talk about their accounts, and some just stop to say hello. I’m amazed to this day, as to how many people stop and ask us who we are and what we do, and are flabbergasted to find out they can diversify their investment portfolio with currencies through us! Amazing!

Okay, time to sign off but first remind you to have a Terrific Tuesday!

Chuck Butler

P.S. The dollar’s sordid tale goes so much further than this. Read the full story on how to protect yourself in the dollar’s final days in our latest report here.

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