Australian dollar set to recover

The Australian dollar can be expected to recover in the next week, holding out above $1.00 parity with the USD. The principal reason I think will be a weaker USD based on the cross-rates. The USD has recovered against the Yen, but it will quickly wither, and test previous low.

The Euro also looks set to strengthen against the USD, though I'd stick with the hard currencies, not the pretend (main) ones.

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Andrew Sheldon www.sheldonthinks.com

ECB repudiated by British representative

This is an interesting excerpt from the last meeting of the European Central Bank, where the British representative Nigel Farrage MEP gave a stinging rebuke to the ECB model. I am curious though....how exactly does he think the 'markets are going to deliver justice to these central bankers when the Japanese and Americans are only too pleased to debase their currency in the pursuit of moral relativism or moral scepticism, depending on your 'relativist' apathy. He is a politician....supposedly a 'moral agent', so where was he over the last 10 years when the ECB, Fed and Bank of England were enabling their governments to blow out their tax-payer funded hides. What a hypocrite!

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Andrew Sheldon www.sheldonthinks.com

EUR and JPY weakness to outpace USD debasement

I actually expect the debasement of the EUR and Japanese Yen to outpace the USD debasement, so we can expect a relatively strong USD. All these currencies will of course be weak against the commodity currencies and emerging markets. See my article about the Fed and Asian property.

The interesting aspect is the impact on the commodity producing countries like Australia, Canada, South Africa, Chile, Brazil; as well as the emerging markets like China, Korea, Thailand, Indonesia and the Philippines.

We can expect these countries to be strong. It is interesting of course because the Fed and EU are blaming the Chinese for the strong Yuan; but partially the reason for the strong Yuan is that the US and European Central Bank (ECB) are debasing their currencies. True, the Chinese are funding the US deficits, and that has artificially raised the USD, but that is with the support of the US government.

We might well expect emerging markets to survive this currency crisis fine this time; largely I think because they can expect a lot of property investment by Western fund managers. Expect a property boom in Asia, particularly the Philippines, China, Vietnam and Thailand. Small Western players are better off in the Philippines because of favourable language (i.e. English), familiar legal system, generous visa rules, and good yields of 8% on high-end apartments.

So what about the commodity producing countries? Australia, NZ, Canada, Brazil and Argentina rely greatly on commodity exports. The problem of course is that mineral commodities do not price at parity with agricultural commodities. This is has to result in these countries sabotaging their currencies with debasement, or more likely we can expect the stronger foodstuff prices to continue. This development makes investment in countries like the Philippines more attractive, or other countries which might have cheaper agricultural land. I know the Philippines does have marginal land as cheap as PHP10-20/m2 (USD0.20/metre2), however you could probably do better elsewhere. Certain higher value crops like coffee are better in the Philippines. Nestle certainly produces a lot. Some of the mountain provinces are also suitable to growing more temperature foodstuffs. e.g. Baguio City is a food basket for the Philippines. It is one of the few cities with malls in the cool mountains...aside from Tagaytay, south of Manila. Anyway, the Philippines is a distraction from the currency strength that is gripping these commodity and emerging markets. So expect stronger commodities as the central banks debase currencies with more 'quantitative easing'.

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Andrew Sheldon www.sheldonthinks.com

Currency market realignment coming - EUR:USD

There are some important developments occurring in the currency market. We are about to see a change from a weak USD to a strong one. Not yet, but we are close. The justification is going to be:

1. Stimulus measures in Japan which will weaken its currency

2. Stimulus measures in the EU, which will refinance Greek/Spanish debts, but also expect some broader-based stimulus.

A turnaround in the USD will of course reduce the appeal of the Dow, as competitiveness will shrink, but not considerably if the later countries are dolling out most of the stimulus. The target value is 1.45 USD for the EUR.

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Andrew Sheldon www.sheldonthinks.com

Nobel Prize winning economist states the bleeding obvious

Joseph Stiglitz, the former chief economist of the World Bank and Nobel Prize winner, has come out and said that he thinks Germany ought to break off the Euro currency. I made more profound statements 5 years ago....When do I get my Nobel Prize? In my Global Market Commentary blog I suggested Spain, Italy and Portugal, given there different cultural values, ought to be on a different currency. I guess my Nobel Prize is in the mail :)

This particular dumb-nut economist is suggesting that 'Keynesian stimulus' might be necessary. In the interests of global peace was he also one of the World Bank, govt-funded economists who supported the stimulus that made the 'extra stimulus' necessary in 2008, or did he back away from that stimulus. Maybe he didn't turn up for that office meeting. Read more in this NZ Herald article.

I am a bigger genius than I thought....I actually said the same thing 5 years ago...read here. There you go!

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Andrew Sheldon www.sheldonthinks.com

Flat EUR-USD currency market outlook

The EUR can be expected to fall back weaken in the short term. It might sfind support around 1.24, or otherwise fall back to previous support at 1.1879. My position is the former proposition, and we can in the middle term expect a stronger EUR. Of course its all relative with the major currencies, as both governments and the Japanese engage in currency debasement.

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Andrew Sheldon www.sheldonthinks.com

EUR-USD turnaround imminent

Expect weakness in the USD this week, as the focus shifts from the Eurozone to the USA. The Euro has fallen to an important support level, and recent trading suggests it will find support at these levels. This of course provides a good basis for future trading once the downtrend is technically breached.

------------------------------------Andrew Sheldon www.sheldonthinks.com

Euro weakness in the short term

The Euro is coming under pressure because of the Greek, Portuguese and Spanish economic fears. I don't see much of a problem with this exposure, but its weighing on the market. There is talk of a bail out. It seems probable that the Euro is falling back to 1.2492 support, though there is an interim support level at 1.2969 which will need to be tested.
The best outcome for the Eurozone would be for these 3 nations, as well as other Eastern European countries lacking in monetary and fiscal discipline to have their own currency, so the puritans in the north can define their own monetary identity. The Mediterranean countries can then peg their new currency to the price of red wine.

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Andrew Sheldon www.sheldonthinks.com

Euro set for a 10% rise against the USD

In the last post we talked about the strengthening in the USD on the basis of interest rates. We suspect the Fed is simply talking up rates and the USD to satisfy the Asian central banks who are getting no interest from their treasuries. The US government of course has to placate these countries because it borrows so much money from them.
Nevertheless in the short term, I'd be looking for US economic weakness to drive the Euro (like the Yen) to the July 2008 high against the USD. We can see in the following chart that the Euro has to rise by another 10% before it reaches that point.
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Andrew Sheldon www.sheldonthinks.com

EUR to reach 1.45

The EUR is probably likely to go higher against the USD, but I would wait for confirmation of that trend because there is still more scope on the downside. I am however expecting the EUR to reach 1.45 in the next month.

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Andrew Sheldon www.sheldonthinks.com

The USD set to plummet!

The USD is set to plummet against a number of currencies. You might be thus wondering where to place your money. Against the gain currencies I would suggest the EURO offers the better opportunity. Some months ago I forecast the Yen falling to Y85. As you can see that move is almost complete, with the USD currently trading around Y90. At the time I attracted considerable criticism for this forecast. I would however expect the EUR-USD to offer far better trading however in the next 6 months.
The question is - Can we expect the USD to break Y83? I think if this were to occur we could be looking at the end of the USD as the international base currency. The question is - what would replace it? Clearly its not going to be the dysfunctional EUR, the distrusted Yuan, the disenfranchised Yen, and what of the worthless USD? Well, the implication is clear, its the USD or its a new global currency. Is it possible that the US debt profligacy was nothing more than a political statement by the US government. Was the US government thumbing its noses at mercantilist Japan and China and saying, SCREW YOU. By all means hold our USD debts as we are going to dilute the value of them. This is interesting times because we are looking at a global emergency, which can provide the justification for a strong USD (higher interest rates) or a new international currency. I would expect Obama to support higher interest rates in the spirit of former President Clinton. But then maybe he wants to distinguish himself by taken the road rarely taken. The implications for gold and the USD are clear.

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Andrew Sheldon www.sheldonthinks.com

EUR-USD returning to USD1.60

The EUR-USD is set to rally again to USD1.60 based on technicals. The EUR is currently lying at USD1.55 support. -------------------------------------

Andrew Sheldon www.sheldonthinks.com

EUR-USD heading for USD1.70

Looking at the chart its apparent that the EUR-USD is going to USD1.70, at which point it will do a double bottom. I would then expect it to return back to its normal trading trade. The technical reasons for this are the strong symmetry evident in the chart. The USD has a 'parityband' between USD1.20-1.35 and has traded within 35c of that band. I am sure the market will be looking to retain that symmetry. So the EUR-USD will be a good 'short' trade from 1.70, though based on prior history, we can expect a 'double top', just as it previously made a 'double bottom' in 2001-2.
In terms of fundamentals, I would expect the Eurozone to welcome the strong EUR as a way of stimulating or supporting US exports in the short term. They might even appreciate the 'lost competitiveness' as a means of driving economic reforms in the EU. The time period is quite long, but we can expect the US election to have reached a result by the time we see the 'double top', then we can expect a recovery in the USD, initially motivated by expectations of rising interest rates in the US, but later also the prospect of greater taxes on the rich. I also believe the US under Obama will adopt a tax on energy, and likely that will subsidise health and alternative energy programs.

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Andrew Sheldon www.sheldonthinks.com

Range trading & consolidating in JPY-EUR

I actually dont forecast much variability in this cross-rate. I see both markets soft with global demand. The JPY will be strong because of the unwinding of the carry trade, but exports will be weak anyway with the US, though might hold up somewhat in Asia. So I largely see consolidation in this market. So expect range trading between JPY143-168.
The promise of reform looks stronger in Europe at the moment, but then they will struggle with their currency issues and I think a softer Japanese market could actually push reforms there long term. But first they need to find a leader with balls.
Japanese personal debt levels are not so high, so there is some possibility support in the domestic economy. But since the Japanese consumers are easily spooked, I dont see that strength for some time. We also have to remember that Japanese employees are alot more vulnerable than in the 1980s since we have seen an increase in the proportion of part-time workers. The positive side is that these are mostly students and women, so in many cases they can return home or rely on a 2nd income. Though it might mean more tired single workers, thus less spending on everything - except rail transport. So if i was to invest in equities in future, I would be inclined to invest in pure rail operators without property development interests. But we are 6mths away from that bet.
- Andrew Sheldon www.sheldonthinks.com

Euro - nothing happening

The Eurozone remains a disappointment - given the slow growth and lack of resolve to establish a unified monetary policy framework. Progress with labour reform is also slow.

The Euro will be weak as the US and Japanese economy strengthen, particularly since the Eurozone will not want to raise interest rates.

- Andrew Sheldon www.sheldonthinks.com