The ball is in the dollar’s court today…Aussie is unable to hold 14-month high…China and Eurozone print stronger PMI’s. Chock-full-o-data today…And Now… Today’s Pfennig!

Good day… Welcome to October! And a Tub Thumpin’ Thursday to you! No real reason to get Tub Thumpin’, but I thought why not? The non-dollar currencies have given back their gains made yesterday to the dollar, in a game of what seems to be, give and take… A tennis match with the dollar, one day the ball is in the dollar’s court, and the next day it’s not! Really, kind of giving me a rash, watching this… I want some direction here!

So… When I turned on all my screens this morning, and then waited about 20 minutes for the new programs to be installed on them that the IT people left for the next time the computer started up… Hmmm, where was I? Oh! I was talking about when I first saw the currencies this morning… I saw that the euro had fallen back to 1.4560… And of course wanted to find out why…

Well, it seems that the G-7 Finance Ministers are going to meet this week, and there is already some discussion that the euro’s rise will be discussed… OK… Currencies traders took this to mean that these mental giants in the G-7 will do something to stem the rise of the euro… Of course, the G-7 Fin Mins might just be discussing how impressive the euro’s gains have been VS the dollar this year! HA!

This plays well with the thought I had and shared with you the other day, regarding Central Bankers from Japan and the Eurozone propping up the dollar… Trust me folks, these guys are smart puppies, and can see the writing on the wall for the dollar, just like you, me and the guy down the street that cuts his grass early in the morning… The last thing they want to happen is for everyone to get the idea that these Central Bankers won’t prop up the dollar, for if that were to happen, it would spring open Pandora’s Box of currency disasters for the dollar!

The Eurozone did receive some strong data this morning…. The latest Eurozone PMI printed. Eurozone PMI is just like here in the U.S. it’s a measurement of the manufacturing activity. But only in the Eurozone it takes in all 16 member countries. This activity is then put into an index so that it can be easily monitored. And just like here in the U.S. the line in the sand of whether manufacturing is contracting or expanding is 50…

Eurozone PMI rose for the 5 straight month, but remained under 50, posting a 49.3 in September… But the trend is manufacturing’s friend here, I would think, as it has risen steadily for the past 5 months.

Let’s talk about something other than the Eurozone… The other day, I was interviewed by Reuters about dollar / yen. I told them that the Japanese yen did not have the fundamentals to support an 88 figure, which it had hit on two occasions in the past week. Well… The Japanese Tankan report, which takes the pulse of the economic activity in Japan, backed up what I had said earlier, when it reported that “Japanese companies plan to deepen investment cuts as profits slump, inhibiting the recovery from the nation’s worst postwar recession.”

Speaking of interviews… I did a quick one in a chat room at DTI, which is an investment education company. This quick interview was just a “teaser” for a full fledged 30 minutes of “Chuck speak” that will happen next Monday at 1:30 CT… It will be a power point presentation that comes across on your computer, with me talking over it… Sounds like it will be tre’ cool… If you want to find out more click here… http://www.dtitrader.com/trading_education_MMM_everbank.htm

With the euro backing off this morning, the rest of the non-dollar currencies are doing the same. Aussie and kiwi have not been able to hold onto gains they made yesterday, and the rest of the currencies just fall in line. You know what I always say when this happens don’t you? That’s right… It gives everyone an opportunity to buy at cheaper levels than yesterday!

The other day, after the S&P/CaseShiller Home Price Index number printed and showed a month-to-month rise in home prices, I thought to myself, is this really something that can catch hold and continue to rise? I then began to put together a list of the “risks” to continued Home Price increases… The list as I have it:
1. 1.5 million homes on the dockets for foreclosure
2. 10% unemployment, with 39% unemployed for more than 6 months…
3. The potential stock market correction
4. The end of the 8% tax credit for first time home buyers, (that son, Andrew took advantage of this summer!)

Long Time Friend… Ed Bonawitz, agreed the list and added that if we just look at how the auto industry fell back into an abyss after the cash for clunkers program ended, imagine what the end of the 8% tax credit program will do…

I was talking with a customer yesterday that has traveled quite a bit over the years, and had businesses in China and Indonesia, etc. I asked him the question that everyone asks me all the time, regarding China’s data… When I’m asked whether this is good data or not, I usually reply that I don’t live there, so I have no other choice but to take it as printed… But, my customer, told me that he believed that, for instance, if China printed a 10% GDP, that it’s probably inflated by 50%! YIKES!

So, with that in mind, China printed their PMI for September last night, and, according to the Chinese, it rose .3% to 54.3%… Again, a number for a PMI above 50 indicates expansion… So… Even if the Chinese inflated the data, their manufacturing sector would still be performing in an expansion mode…

And… What’s good for the goose (China) is good for the gander (Australia)! I told you earlier that the Aussie dollar (A$) was not able to hold it’s gains made yesterday that brought the A$ to .8859, a 14-month high for the currency. China is now on holiday for the next week, so the A$ will have to find some traction from other areas… So, it’s not out of the realm of possibilities that the A$ drifts in the next week…

I see where Big Ben Bernanke will be giving some prepared remarks to lawmakers this morning about the need for strong consumer protection of financial services… Hmmm… This makes me laugh, and laugh hard! Isn’t this kind of like the fox telling the farmer the need to secure the hen house after it’s been raided?

I mean, the Fed had the control, the supervisory power, to protect consumers from the lending practices that went on but did they? NO! They turned their heads and looked the other way, while the mortgage mess grew and grew… Just like a child… If you look the other way when they misbehave, then the misbehaving will get worse, and worse…

Seems Big Ben was a little upset a couple of months ago, when it was proposed that there would be a new Consumer Protection Agency… He felt like the Fed was being knocked down a notch, and he criticized the proposal… I doubt he’ll go down that road again, as I’m certain, he received a “memo” from the powers to be, which told him to shut his trap and go with the President’s plan…

The data cupboard today yields the U.S. version of PMI, which we changed to ISM a few years ago… The ISM in the U.S. went back above 50 in August, and is expected to have gained a bit in September. This is good news for the economy… But one has to wonder about what happens after the all the build up for the cars for clunkers program filters through… But, with the dollar much weaker than 6 months ago, manufacturing certainly gets a lift.

We’ll also see Personal Income and Spending, which unfortunately has shifted back to the days of us spending more than we make… Didn’t we learn anything? It’s Thursday, so the Weekly Initial Jobless Claims will print… And then rounding out the data today are reports on Vehicle Sales, and Pending Home Sales… So a very busy day at the data cupboard!

OK… Before I go to the recap and the currency round-up, I just had a thought about today’s actions in the currencies VS the dollar. The Asian and European sessions sold the currencies and bought dollars… When the NY guys and girls arrive and see what has happened overnight, I suspect we’ll see more selling, as they will have orders to fill… So… The cheaper levels could be still to come today…

Then there was this… Bank of America’s CEO Ken Lewis announced his retirement… I find this to be somewhat strange… Very strange indeed…

To recap… The ball is back in the dollar’s court today, as G-7 gets set to meet this weekend and maybe discuss the euro’s rise… Japan’s Tankan supports my belief that there are no fundamentals that support a yen at 88, and the Eurozone posts its 5th consecutive gain in manufacturing…

Currencies today 10/1/09: A$ .8790, kiwi .7210, C$ .9315, euro 1.4555, sterling 1.5990, Swiss .9590, rand 7.6645, krone 5.80, SEK 6.99, forint 185.65, zloty 2.9050, koruna 17.45, RUB 30.09, yen 90, sing 1.4125, HKD 7.75, INR 47.76, China 6.8265, pesos 13.55, BRL 1.7665, dollar index 77.10, Oil $70.10, 10-year 3.30%, Silver $16.61, and Gold… $1,005.25

That’s it for today…

Chuck Butler

Source: G-7 to Discuss Currencies?