The US Federal Reserve rate cut yesterday was more than I anticipated. With the possibility of further rate cuts, very limited now, and also the possibility of bailouts not likely to happen, the USD currency will be totally market driven.

Meanwhile, the Euro has recovered 40 percent from its drop against the USD, which went from 1.66 to 1.22. In the next couple of days, if the Euro goes higher, around 1.42 to 1.46, then the previous bottom of 1.22 can be treated as a final bottom and the likelihood that Euro would go to 1.18, as I wrote in my earlier reports, becomes unlikely.

New measures are only likely to happen next year, once Mr. Barack Obama assumes office. For now, the auto sector and the credit situation remain the main focus.

Currencies:
Euro might still move higher against the USD to 1.4230. GBP for the moment is very bullish and is likely to move to 1.6550, against the USD.

Gold: Target is 875 for this year.

Oil: Likely to remain below the USD 45 level with USD 30 being the target, per barrel.

EUR/PLN-USD/PLN: Both these currency pairs should have been stronger than their current levels, however, for some reason they have not appreciated as much as the EUR/USD or the GBP/USD. I would expect the PLN to get a bit stronger.

The automotive sector is the main focus. If not assisted financially, the auto sector could immensely worsen the job situation. The current 5.8 percent unemployment level in the US is still better than most other G7 economies. However, if the auto sector is let go, then this could mean another 1 to 2.5 million job losses over the next couple of months. Keeping in view that Germany and France have been managing with unemployment levels between 8 to 12 percent in the last couple of years, I think US could manage that as well. I do not see this as a gloom-doom situation. Further, the credit situation still needs to be controlled, which at the moment is more important and a weak dollar would help.

If you have any questions, you may contact Madan Sharma directly through email.


Disclaimer: Any opinions, news, research, analyses, prices, or other information provided by the author are provided as general market commentary, and do not constitute investment advice. Neither IFB nor the author is liable for any loss or damages, including without limitation, any loss of profit which may arise directly or indirectly from use of or reliance on such information. Investors are advised to consult their broker before making a decision on buying or selling a particular security, product or currency pair. These articles are opinions and should be treated as such.

President-elect Barack Obama’s selection of an economic team reflects, in some way, what the US economy might expect. For the most part, the chosen team members are strong dollar policy supporters. The team is very experienced and qualified to handle the recession at hand.

Two situations that may be similar but happen during different times are never an exact repeat of each other, and the second time around more tools are always available for handling the crisis. In my opinion, the new initiatives proposed or which are being considered will comfortably stir the US economy back to a growth path. However, the time frame cannot be guessed. Technically speaking, I see no sign of a USD reversal, for now, and it will remain strong. With new measures being proposed, other than fiscal policy, I am once again optimistic on the US economy.

• Many parallels are being drawn between 1929 and now, and also between the recession in Japan in the 1990’s and now, however, these are not identical situations. Plus different tools are available now to handle the current recession.
  
  
• The new measures proposed, like an initiative to embark on an ambitious infrastructure and reconstruction plan, are a very good sign for the economy and will considerably boost it.
  
  
• Today’s Bank of England meeting is expected to result in further cuts to the UK interest rates. The European Central Bank is also expected to bring interest rates lower. Hence the US dollar is likely to remain strong.

Gold is holding pretty well. It’s still around its highs of 2008. Gold remains bullish.

Oil will drop further and is likely to come down to $30 USD a barrel.

GBP is the weakest among all currencies and is likely to drop to 1.4 and then to 1.3 against the USD. If some concrete measures are not announced to revive the economy we might even see the GBP going lower than 1.3. While, JPY remains strong but one need to be careful once it reaches 90 levels as it might bounce to around 95.

USD/PLN: Likely to go to 3.20/3.30, for now.

 

Disclaimer: Any opinions, news, research, analyses, prices, or other information provided by the author are provided as general market commentary, and do not constitute investment advice. Neither IFB nor the author is liable for any loss or damages, including without limitation, any loss of profit which may arise directly or indirectly from use of or reliance on such information. Investors are advised to consult their broker before making a decision on buying or selling a particular security, product or currency pair. These articles are opinions and should be treated as such.

There is a need for a new financial architecture that includes new regulatory framework with more representation from newer economies in addition to the G-7. This would make the body more representative and put forward the realities of the new economics.

Not much was expected out of the G20 summit other than a beginning for what some have termed as Bretton Woods II. Most leaders stressed the fact that the financial crisis, which started in the USA:

• has now gone global
• choked normal credit channels
• triggered a worldwide collapse in stock markets
• started to affect the real economy
• has affected most industrialized countries, which have gone or are going into recession with no sign or early recovery
• has started to show signs of the Great Depression

Since the crisis is global a global response is needed, and the approach should be divided into immediate response and medium term objectives. The immediate response is concerned with injecting liquidity into the financial system and recapitalizing banks, and other systematically important institutions. The medium term response is of reforming the global financial structure to prevent similar crises in future.

All measures should be taken at the national level to complement any coordinated international stimulus. The international community needs to consider special initiatives to counter the shrinkage of capital flows to developing countries that is almost certain to occur over the next two years.

 

(Salient features of the speech made by Indian Prime Minister ManMohan Singh at the G20)

Disclaimer: Any opinions, news, research, analyses, prices, or other information provided by the author are provided as general market commentary, and do not constitute investment advice. Neither IFB nor the author is liable for any loss or damages, including without limitation, any loss of profit which may arise directly or indirectly from use of or reliance on such information. Investors are advised to consult their broker before making a decision on buying or selling a particular security, product or currency pair. These articles are opinions and should be treated as such.

For now, here are my currency targets, but I expect the markets to start moving today.

STG/USD: Buy at 1.5492 – Target 1.5825
EUR/USD: Buy at 1.2620 – Target 1.2820
USD/CHF: Sell at 1.1831 – Target 1.1660
Gold: Buy at 725 – Target 791.50

USD/PLN – EUR/PLN: I expect USD/PLN as well as EUR/PLN to remain range bound making no new lows, for now.

All positions should be with tight stops because if these levels are broken the market will test previous lows in the case of EUR and STG.

Now about the Dow Jones Industrial Average. Although the Dow has dropped in the last two days, I expect it to bounce back tomorrow and progress to a target of 10,000 in the coming weeks. But this needs more commentary, which I’ll provide over the weekend.

 

Disclaimer: Any opinions, news, research, analyses, prices, or other information provided by the author are provided as general market commentary, and do not constitute investment advice. Neither IFB nor the author is liable for any loss or damages, including without limitation, any loss of profit which may arise directly or indirectly from use of or reliance on such information. Investors are advised to consult their broker before making a decision on buying or selling a particular security, product or currency pair. These articles are opinions and should be treated as such.

I see the rise of the USD as only temporary, since for now I foresee the strength of the USD limited to the middle of December. I expect the Polish economy, by and large, to remain unaffected as long as some bank does not collapse. Stock markets do not, of late, represent the complete economy and hence a drop in the stock market cannot be considered as measure of the full health of the economy.

So far, the financial crisis is well contained but not over. The US economy is faced with two main challenges: debt and availability of credit, which are quite manageable, but we need to wait and see the new president’s initiatives.

In the last few days, we have seen a spectacular rise in the value of the USD. Though, I did expect a technical correction in the value of the dollar, as indicated in my reports earlier, I did not expect it to get so strong so fast.

In my opinion, sustainable things happen slowly. Therefore, if the USD is gaining ground so fast it is likely that at some level speculators will decide to switch to other assets, such as the Yen, CHF, Euro, Gold, Silver, Platinum etc.

Most world central banks hold several billion USD. It makes sense to have a strong USD because it allows these central banks the opportunity to get out of the USD. Just like it was not a very sensible idea to buy Euro/USD at 1.6, so likewise it won’t be a great idea to sell euro/USD at say 1.1 or say 1 in the case when the USD becomes so strong.

The USD tends to further gain during times of crisis. If the doomsters are correct in what they are saying that you can never really gauge human psychology, and however a good economist you are it would be safe to bet that at some stage holders of large amounts of USD would decide to play safe and get out of some of their USD holdings. If various Asian Central banks decide to shift even 10 percent of their reserves to other assets, that would be a massive amount of USD.

One of the market Axioms is that the market always repeats itself. However, the response of the government and the market players is never exactly the same. Each set of players draws on the earlier experience and is well prepared to take care of the problem at hand. Problems have a nasty habit of behaving unexpectedly. Had we been so clairvoyant we would not have a financial crisis in the first place, hence it would be safe to assume that some things might happen in a way that will take the FED as well as financial pundits by surprise.

The US needs a weak USD to boost domestic production. At the same time, the US needs a strong USD to keep up confidence in the USD as reserve currency. A strange balance indeed.

 

Disclaimer: Any opinions, news, research, analyses, prices, or other information provided by the author are provided as general market commentary, and do not constitute investment advice. Neither WBJ nor the author is liable for any loss or damages, including without limitation, any loss of profit which may arise directly or indirectly from use of or reliance on such information. Investors are advised to consult their broker before making a decision on buying or selling a particular security, product or currency pair. These articles are opinions and should be treated as such.