"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET



Tuesday, May 6, 2014

Strong European PMI data boosts the Euro

What seemed the set the tone in the Forex markets today was the various European PMI numbers that were released very earling in the morning our time. The composite PMI ( both services and manufacturing) came in at 54 but it was the individual countries which sparked the Euro. Spain registered a 56.5, up from 54.0 in March. Italy showed a 51.1 reading compared to 49.5 in March. UK services scored a 58.7 compared to 57.6 in March.

Once those numbers hit the wires, the Euro shot through 1.39, a technical resistance level which has been containing the upside for the Euro for some time now.

If that wasn't bad enough for the US Dollar, the Canadian Dollar jumped when Canada's trade data was released. Even the Yen was higher today. The problem that the Dollar is currently having is that the Fed, while continuing to taper and reduce the amount of bond buying, has laid out its forward guidance in a manner that suggests that there are not going to be any interest rate hikes for perhaps a full year out. When traders look at that, and they see general economic improvement elsewhere, they are bypassing the Dollar. It does not seem to be a case of aggressive Dollar selling but rather one in which it is being passed over - in other words, more an absence of strong and eager buyers. Markets follow the path of least resistance and without any dedicated buyers, that means down for the Dollar, for now.

There is a lot of guessing taking place as to what the ECB is going to do there because complaints about the strength in the Euro are increasing among some European manufacturing interests. That, and the fact that Eurozone inflation remains very subdued, too subdued in the minds of some. They of course are blaming that on the strong currency.

If the ECB were to surprise the market ( which currently is not expecting them to do so ) by an early rate cut, instead of waiting until June as the market broadly expects, that could be expected to weaken the currency but for now, traders are chasing it higher as the technical chart breakout is bringing in momentum buying.

When one looks at the events in Ukraine, and realizes that Europe is the especial region where the impact from any serious escalation of events over there would impact, watching the Euro move higher like this is rather interesting to say the least. Traders are obviously putting that on the back burner today and focusing on the PMI numbers.

One thing that the stronger Euro is succeeding in doing is to drive the price of gold in Euros down at a faster clip than gold priced in US Dollars today.


Euro gold is stuck in a range trade just like its Dollar-priced counterpart. The ADX shows a trendless market but one in which bearish forces are currently dominating. You can see both the resistance zone and the support zone I have noted. For the potential to trend to occur, one of these zones will need to be convincingly taken out.

This is the same problem that gold has been encountering for some time now. With economic data improving, and with gold throwing off no yield, it is taking geopolitical issues to keep it supported. Otherwise, traders/investors are opting for higher-yielding assets. That is keeping the market trapped within a range.

The one plus for this is that silver is actually a bit higher as a result of the strong European economic data. Even copper managed to firm.

Hard Red Winter Wheat is leading the grain complex today as beans succumb to talk of increasing imports from S. America. Drought and heat are hurting yield in key growing regions for the KC wheat and traders are pushing prices higher. Also aiding the move higher is that unrest in Ukraine, a key wheat growing region.

I will try to get more up a bit later... wanted to give a short update as to why the Dollar was moving lower today.

4 comments:

  1. Thanks Dan.

    The USD is somewhat tanking a bit today and gold (and silver) investors just yawn at it.

    Not a good sign.

    ReplyDelete
    Replies
    1. Maybe I am a fool but I just can not get my arms around Italy and Spain improving. One month does not a trend make.

      Delete
  2. What a shocker! The US dollar gets hammered today and gold which (according to Dan) should benefit, gets sold off. What a surprise.

    ReplyDelete
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