Thursday, August 10, 2006

Lost in Limbo Land

EUR/USD 1.2824 Hi 1.2916 Low 1.2819
USD/JPY 114.99 Hi 115.47 Low 114.67
AUD/USD 0.7693 Hi 0.7718 Low 0.7644
EUR/JPY 148.48 Hi 148.64 Low 147.34

June Trade data released in the States today came out pretty much as expected. That is, the numbers were bad. But then Trade Data that comes out of the States have been bad since the beginning of time, so today's numbers weren't exciting enough to move the FX markets. In order to close the trade gap the USD would have to devalue by about half. Only they already did that. Remember the PLAZA ACCORD? The USD/JPY has fallen by more than 50% since then, and the U.S. still runs a deficit with Japan. Nowadays the target is China - where a lot of Japanese production has been shifted. The new idea being that a currency revaluation will fix everything. Yeah, right. So pressure is being brought to bear on China. Same old, same old. Ten years from now we will be reporting about the massive U.S. Trade Deficit.

The USD is still pretty much dead in the water. No new news, too much uncertainty and too many established positions. The FED PAUSE didn't give USD bears enough momentum to break out of established ranges. So we are back to buy the rumour, sell the fact. Only don't get too excited about anything because right now even the Central Bankers don't know what is going on. Just read their policy statements.

In London reports that British Intelligence had foiled a massive terrorist attack was enough to give Stock Markets a scare. Though the ugly performance of the U.S. Stock Market following the BIG PAUSE, certainly isn't doing a lot for the BULLISH stock market case. It's hard to say if this is BUY THE RUMOUR SELL THE FACT yet again, but it could be. I don't think the Stock Market correction is over quite yet, but the speed and extent of the correction could disappoint the die-hard BEARS.

Oil 75.77
Gold 655.30

Somewhere out there there is a U.N. Resolution lost and looking for a way home. All the big honchos are in on this. Only not really. In Europe it's Summer and OLD EUROPE still does Summer. Bombs are falling, the Israeli invasion of Lebanon is picking up speed and there are ugly rumours about the next target, which of course is IRAN. This is just the way things are. The guys who believe that there is a bomb for every problem are in charge in the USA and Israel. I guess that's where DEMOCRACY gets you. That must be the whole point of bringing DEMOCRACY to the Middle East: bombs for everyone. The Iraqis certainly seem to have found that out.

The Middle East is being turned into a battleground and OIL is pretty much flat. Which is remarkable. It should also worry the OIL bulls, particularly if market focus is going to shift away from GEOPOLITICS to recession. Not that OIL is going to hit a long term bear trend any time soon, but we could see some decent profit taking.

If OIL can't rally now, then maybe we have seen a top for the time being. The thing worth watching is the concerns about recession. We may not have a recession on our hands. It doesn't matter. What matters is that the concern spreads in the market enough for funds to start exiting positions. Everyone is long commodities, so exiting means selling pressure. The failure of OIL to break out to the upside could be a harbinger for profit taking in commodities, right across the board.

Now that would be good for inflation. Maybe Ben Bernanke is onto something after all.

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