Who’s figured out the signals? 1 Mar 2007

Key News
• Yen Falls a Second Day on Speculation Demand for Riskier Assets to Rise – Bloomberg
• U.K. Pound Records Biggest Monthly Decline Versus Euro in Almost a Year  -- Bloomberg

Key Reports Due (WSJ):

8:30a.m. Feb Challenger Layoffs. Previous: +15.2%.
8:30a.m. Initial Jobless Claims. Expected: -7K. Previous: -27K.
8:30a.m. Jan Personal Income. Expected: +0.3%. Previous: +0.5%.
8:30a.m. Jan Personal Spending. Expected: +0.4%. Previous: +0.7%.
10:00a.m. DJ-BTMU Business Barometer For Feb 17. Previous: -0.2%.
10:00a.m. Feb ISM Manufacturing Business Index. Expected: 50.0. Previous: 49.3.
10:00a.m. Jan Construction Spending. Expected: -0.4%. Previous: -0.4%.
N/A Feb Auto Sales. Expected: 16.1M. Previous: 16.7M.

“There’s no crying in forex trading!”

  John Ross Crooks III
  (Adapted from A League of Their Own, “There’s no crying in baseball!”

FX Trading – Who’s figured out the signals?

After hearing all the jawboning about Tuesday’s global market meltdown we just assume give you all a break and talk about something entirely unrelated.  After all, how many people are aware that yesterday was the first official day of Major League Baseball’s Spring Training 2007?

Exactly our point. 

Being down in south Florida, deep in the heart of the Grapefruit League spring training facilities, we’d love to get you all hyped up about the upcoming season.  It’s hard to push our minds away from the diamond but let’s face it – there’s so much going on this week we’d feel bad cutting you off from your daily dose of “What’s next for the markets?” with our preseason predictions (hopes and dreams) of which teams are destined for this year’s Fall Classic (Florida Marlins).

So instead of dusting off our mitts just yet we’re going to try to make something of the markets this morning.

The unemployment rate in the euro-zone declined to record lows of 7.4% in February.  Confidence in the European economy is growing.  And despite an indication this week that inflation in the region might be slowing, key players are calling for the European Central Bank to increase borrowing rates in the coming months.

This week could tell the tale for monetary policy in the U.S.  That’s because a lot of data released in the past few days point to an economy that’s running uphill.  For instance:

* Durable goods orders sank lower.

* The Commerce Department said GDP grew at an annual rate of only 2.2% after original estimates had been set at a much stronger 3.5%. 

* New home sales plunged by more than 16% in January – far exceeding the estimated drawdown. 

If the U.S. economy takes a turn downhill it doesn’t bode well for strict monetary policy and, thus, the U.S. dollar.  That’s especially the case when Europe is going strong and talking up rate hikes.  And if the U.S. economy struggles wouldn’t that mean much of the same for Japan?

Let’s face it, Japan is no model of sturdy growth these days.  The U.S. is a large part of the little momentum Japan’s economy has actually got going.  That relationship will remain a critical one as Japan seeks to emerge from the deflationary shadows.  But it’s hard to see the money spigot get turned off when the BOJ can’t form any basis for tightening up on rates on Japan’s domestic growth prospects either (retail sales fell for a third straight month in January.) 

If the carry trade lives on then it’s back to smooth sailing for the Aussie, Kiwi, euro, and even the pound.  Not so smooth for the mighty dollar. 

We’ll sit back for now and enjoy our peanuts and cracker jacks.  We’ll wait to see if liquidity is at risk of drying up or even see if risk-taking is at risk of drying up.  That might tell us whether or not the yen is headed back to its lows or if the dollar might actually find some support … anywhere.   

Play ball!

John Ross Crooks III

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