Buck Bouncing Back
Dollar index futures
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PowerRating) are rebounding from
bruising looses incurred off of a double-top formation. The March contract has
waterfalled 7% since the double-top peak summitted on November 24.Â
Although a stalled U.S. economy, the prospect of domestic
interest rate cuts, and the perception of a relatively healthier European
economy have been the primary factors weakening the greenback, today’s (and
yesterday’s) focus is on the dollar-yen
relationship.
Japan has had a string of three reports showing that the
economy is grinding to a halt even faster than in the US. This week’s reports
showed that consumer spending fell, unemployment rose, and industrial production
dipped. Japan also has sizeable inventories that it needs to unload in a world
economy that is downshifting demand. Add to that the now-questioned recent
interest rate hike and you have what many observers believe is a recipe for
slower growth ahead. With Japan’s fiscal hands tied — Prime Minister Mori
recently survived a no-confidence vote — and with the
monetary-policy weapon already going against the grain of economic stimulus,
officials appear to be resorting to devaluation as a means of exporting the
country’s way to financial health. Indeed, comments from Japanese officials
recently appear to favor a lower yen. Without the threat of intervention
lessened, the road lower for the yen is open.Â
One final economic note in this regard. Yesterday’s rally
in US retail stocks despite holiday sales coming in below plan implies that
consumer spending may not be waning as rapidly as feared. Consumer spending is
important to US growth because it accounts for two-thirds of GDP. If the US economy is
not doing as poorly as the recent dollar plunge suggests, than the beleaguered
greenback could see a healthy countertrend, or corrective bounce. The Fed’s
decision not to cut rates last week may support this view that the economy is
not stalling as rapidly as feared.
Technically, the Japanese yen
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PowerRating) is on the Implosion-5 List
and trading at a new contract low for the fourth consecutive day.
Interest rate futures are moving lower for a third day of
a contract high and for a reason that supports the argument that the economy may
not be slowing as rapidly as appeared. The weekly jobless claim figures came in
lower than expected and worked to refute the previous week’s surprise jump in claims.
Fewer jobless claims imply that the labor market–a sign of economic health– is
not degenerating as worker output translates into economic output. The prospect of a slightly stronger economy and lower unemployment is supportive for bonds since it tempers the Fed’s duty to reduce interest rates to stimulate growth.
T-bonds
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10-year notes
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Chilly weather across the Midwest amid lower stockpiles
of heating fuel are pressuring February heating oil
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PowerRating), down .0200 to
.8710.