Euro Will Not Join Currency Wars!
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In This Issue.

* Merkel says euro 1.30-1.40 is normal.

* RBNZ's wheeler to join currency war.

* Aussie sells off again.

* Gold falls below $1,600.

And, Now, Today's Pfennig For Your Thoughts!

Euro Will Not Join Currency Wars!

Good day. And a Wonderful Wednesday to you! A good night for our college basketball teams, but not so much for our Blues. My beloved Missouri Tigers beat number 5 ranked Florida, and the St. Louis Billikens beat VCU to pull into 1st place in the A-10.. Great stuff! I wish I could have stayed up to watch the comeback by the Tigers, but a late start, saw me only watching the 1st half. the perils of waking up early, eh?

Well. the euro seems to be making a comeback this morning, touching 1.34 briefly, and hanging around the figure most of the morning. Yesterday morning the euro was trading around 1.3340. So, more than 1/2-cent in the move overnight. I have to once again applaud the European Central Bank, the Bundesbank, and Eurozone leaders in making it perfectly clear that they will not participate in the "active exchange rate policies" that most other countries are turning to. You know, the so-called Currency Wars. In fact, the euro got a boost this morning when German Chancellor, Angela Merkel, said that the "euro at 1.30-1.40 is normal". That's a good indication that Germany doesn't see a problem with a stronger euro.

Then on the other side of the Currency Wars coin, the Reserve Bank of New Zealand (RBNZ) Gov. Wheeler, made it clear last night that he's ready to intervene to influence the kiwi. He went further saying, "When the NZ dollar is coming under upward pressure, we want investors to know that the kiwi is not a one way bet." Oh, brother! For all these past recent years, we had then RBNZ Gov. Bollard, dissing the kiwi whenever he felt it getting too strong, and now we have the new guy, Wheeler, outright saying he will sell kiwi to weaken it, if it gets too strong.

Well, he doesn't have to wet his powder any today, the markets made sure of that by selling kiwi by the barrel full after Wheeler's comments. And maybe that's all he was looking for. But probably not. Even with the sell-off last night, kiwi has still booked a 1.7% gain VS the U.S. dollar so far this year. No great shakes, but better than booking losses!

The Aussie dollar (A$), which had booked some gains yesterday on the Central Bank meeting minutes that we talked about yesterday, is selling off in sympathy to kiwi this morning. The A$ just can't seem to catch a break these days. and that doesn't spell good times ahead for a currency, folks. When the A$ gets support from Central Bank minutes, it should last more than one day.. And then to sell off because kiwi is? I would say the A$ is in for some trips to the woodshed.

Yesterday, we had two different leaders in Japan making opposite comments on bond buying. Fin Min, Aso, said no bond buying was needed, and PM Abe, said bond buying was an option. the markets were confused until PM Abe came out last night and that "the need for a policy of bond purchases is declining". Yen is flat this morning, but still has the bias to sell for sure! Remember, that the G-20 basically gave Japan green lights to sell yen, as long as it was to promote growth, and not instigate a Currency War.. As if, the knuckleheads at G-20 would know the difference!

And here's something that's begun to show up on Japan's books that is very scary. Japan's Trade Balance, which used to always be a Surplus, has been showing deficits this last year. Well, their January Trade Balance was a record Deficit of 1.63 Trillion yen ($17 Billion) Japan's hands are tied behind their back here. Yes, they want a weaker yen, and that would help exports, but would also make imports more expensive, and with the nuclear energy facilities in Japan remaining to be shut down, manufacturers need to import fossil fuels, which with the yen so weak, are pretty expensive.

Another major currency in trouble is the British pound sterling (GBP). The Monetary Policy Committee's (MPC) meeting minutes revealed that Bank of England (BOE) Gov. King, and another BOE member, Fisher, had joined forces with another BOE member, Miles, and had all voted for additional Quantitative Easing (QE). I think that the markets saw this and said, "hey, that's a great excuse to sell GBP". and so they did!

With the euro stronger this morning, that means the Swiss franc can move stronger too. I think that as time goes by, that franc bulls will try to break away from the euro. But, they will only be successful should the Swiss National Bank (SNB) decide that it's a good idea. But, while these two are tied together, they will move in tandem.

"The BRICS Are Back". Well, that's according to the research people over at Bank of America / Merrill Lynch. And I have to say that while in my mind the BRICS never went away, they did have a slow growth year in there, I would have to agree! But then that shouldn't surprise Pfennig Readers, as I've been touting the Emerging Markets for some time now, and these BRICS are Emerging Markets for sure!

I've also been talking about the strength of the Brazilian real (the B in BRICS) lately. The one currency in the BRICS that gives me the willies is the Indian rupee. Every time the rupee gets on a run, it gets knocked back down. and then struggles to regain any footing. So, be careful, ALWAYS, with Emerging Markets folks. While I think that the improvement in global growth will come mainly from the Emerging Markets this year, that doesn't mean it'll all be seashells and balloons for them all the time.

I love it when these BIG guys and their HUGE research divisions jump on my bandwagon! The research division at EverBank consists of. me. Or Chris when he writes, and Mike when he writes. But for the most part. it's just little ole' me. now that's funny! (little ole me, as if. ha!)

Today, the U.S. data cupboard has plenty to give us. Not all of it though is market moving, so I'll just touch on the Big stuff. We'll see the January data for Housing Starts. I would think that it would back off from the previous month's jump. The stupid, but not as stupid as CPI, PPI (wholesale inflation) for January prints today, and should show minimal increases. And then finally, the Fed's meeting minutes from the last meeting. The markets seem to be hung up on these meeting minutes today for some reason. I guess they want to see if the Fed Heads talked more about the need for stimulus, etc.

Gold & Silver received their daily beating from the NY traders yesterday, losing $5 on the day, with Silver experiencing a dollar loss day! I continue to read stories about retail demand in India and China for Gold, and just shake my head in disgust that this demand is not allowed to move the price of Gold higher. I know why it doesn't and knowing why doesn't make knowing any easier! All I can say is that cheaper levels to buy are available.

And look at the 10-year Treasury trading with a yield of 2.05% this morning! Apparently, selling Treasuries is the trade these days for investors. But just wait, the Fed will probably step in here soon. that's been the case for the past few years, no reason for them to change colors now!

Then There Was This. Yesterday, I told you what the U.S. had on its docket that's due March 1st. Well. now the U.S. President, is urging Congress to pass a measure to delay for the rest of the year a series of automatic cuts that are set to take effect on March 1st.

"It won't help the economy. It won't create jobs. It will visit hardship on a whole lot of people," the president said. The cuts, he added, will "add hundreds of thousands of Americans to the unemployment rolls."

Washington appears increasingly resigned to allowing the sequester to go ahead. The cuts, totaling $1.2 Trillion over the next 10 years were a part of the agreement back in 2011, when the debt ceiling debacle unwound. Remember? A bi-partisan group was put together to come up with cuts, and they couldn't agree, so that meant on Jan 1, 2013, the automatic cuts would begin. Then Congress passed the sequestration of these cuts, to March 1st.

Chuck again. remember, that this was all passed by Congress and signed by the president in 2011. But now, he's having second thoughts about this. This is a perfect example of kicking the can down the road, and then catching up with the can. They tried to kick the cuts down the road, and then they kicked it further down the road, and now. Well, if you ask me, I would say that they will find another way of kicking it down the road further. But, they shouldn't! Sure the cuts will hurt, but not that much! It's $1.2 Trillion over 10 years! That's peanuts compared to what our Debt will look like in 10 years!

To recap. The euro is stronger this morning on talk that the Eurozone leaders will not join the other countries in their so-called Currency War. Most of the other currencies are booking losses though this morning, and each for their own reason, which is more like it used to be, and not all traded together! Gold & Silver received their daily beating yesterday from the NY Traders, and are getting whacked again this morning. And there's plenty of data to move the markets today, should the markets be so inclined.

Currencies today 2/20/13. American Style: A$ $1.0310, kiwi .8360, C$ .9860, euro 1.3375, sterling 1.5285, Swiss $1.0835, . European Style: rand 8.8745, krone 5.5455, SEK 6.30, forint 218.05, zloty 3.1135, koruna 18.9805, RUB 30.09, yen 93.55, sing 1.2370, HKD 7.7545, INR 54.06, China 6.2371, pesos 12.66, BRL 1.9560, Dollar Index 80.60, Oil $96.85, 10-year 2.05%, Silver $29.05, and Gold. $1,590.00

That's it for today. I woke up very early this morning and couldn't get back to sleep, so I just got ready and came in to work, and then I look up and notice that I've been writing for over 2 hours! UGH! So much for coming in early! Some days it's just like that, and some days I have it all done in an hour. The Rhythm of Love by Yes, is playing right now. That's a song that will get your heart beating! The sun is rising in the east, apparently, tonight we're going to get hit with a winter storm of snow and sleet. Oh boy! Just what I want to deal with! This is the main reason I don't want to spend winters here any longer! And with that. I hope you have a Wonderful Wednesday!

Chuck Butler
EverBank World Markets

Posted 02-20-2013 5:20 PM by Chuck Butler
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