OK… A bad day a the office for the euro and other currencies on Friday, and then last night in the overnight markets… European Central Bank (ECB) President, Trichet, once again deep-sixed the euro with talk of further rate cuts. He did attempt to water down the message by saying that “any rate cuts would be measured 25 BPS cuts” Memo to Trichet… It doesn’t matter what the size of the debasing is, as long as you are going to debase your currency, the markets will make you pay for it!

So, the euro is at a one-month low VS the dollar this morning… Of course, remember what I told you over a week ago regarding the earnings season for U.S. Corporations, and how the currencies needed to break the link to stocks before those earnings began hitting the news wires. Unfortunately, besides the one day break that we saw, an earnest break hasn’t happened, and now the stocks are going to weigh heavily on the currencies… I know, I know, the couple of banks that have announced, have announced some very nice surprise earnings… But you must draw a line between those that have received billions in aid, and those that have not! As I’ve said before, look under the hood at these banks / financial institutions, and tell me their earnings would have been as good without the billions of stimulus…

The other thing the euro has to deal with right now, is what I talked about last week, and that is getting bogged down with the split among ECB ministers as to how monetary policy should be administered to combat the recession. There’s been no resolution to this disagreement, and so the euro suffers.

But don’t forget what I told you about the euro on Friday… If you keep that in mind, that the ECB is fully aware of what’s going on in the U.S. with the deficit spending and money creation, and what it’s going to do the dollar eventually. They don’t need the euro taking off VS the dollar too soon… So, this is all “noise”… As I said before, you may be spinning, sliding uncontrolled toward the guardrail on that icy road, you know you’re going to make impact, it’s just a matter of time before it happens… The dollar is spinning, sliding toward the guardrail too… It’s just a matter of time before it happens…

Well, we have a couple of Central Bank meetings this week… The first will be the Bank of Canada (BOC), which will meet and discuss rates. I believe they’ll be discussing something else at the meeting as well… Quantitative Easing (QE)… In fact, I think the BOC will leave rates unchanged, but announce how they will introduce QE to their markets… That means there’s another currency on the list of ones that have seen their respective countries take on QE… And you know what that means don’t you? It means that I cross them off my list of currencies that are eligible to be on Chuck’s Hit Parade!

Sweden’s Riksbank will also meet this week… I do expect them to cut rates. The krona has been a very disappointing currency in recent times, and the size of their rate cuts explains it all… When the Riksbank meets tomorrow, they will most likely cut 75 BPS to .25%, basically zero… And if they talk about “doing whatever is necessary to save the economy” then they will be setting the table for future QE…

Geez Louise! Doesn’t anybody want to have a strong currency any more? The Swiss National Bank (SNB) said last week that they don’t think that it’s a competition to see who can devalue their currency the quickest… Hmmm… Sure seems that way to me!

Gold had a very tough week along with the other non-dollar assets. I just look around at what’s going on in the U.S. and the world, with all the crack-pots running around acting like they’ve spent a day in the drug den, and think to myself, that Gold should be trading much higher, and not suffering through weeks like last week. I read a piece from my friend the Mogambo Guru over the weekend regarding this very topic, and thought it to be a good thing to add to the Pfennig this morning…

The Mogambo Guru — “Laurence Meyer, a former Fed governor (and so he ought to know) admitted to Bloomberg that the Federal Reserve “is ‘running a laboratory experiment’ on what drives inflation: the money supply or the output gap.”

The fact that we already know the answer to this experiment is what makes me stand at the window and shout at passersby that they should “Buy gold, silver and oil right now, you pedestrian morons, because your Congress is spending the ‘too much money’ that is being created by the Federal Reserve just for that sinister purpose, and which will burn you alive in the painful fires of inflationary hell!”

That Mogambo… He certainly has a way with words! HA! He’s one of my faves folks, and can be read every Monday on the Daily Reckoning: www.dailyreckoning.com along with the Pfennig!

There’s a whispering campaign going on among “those who know” or “think they know” that all this deficit spending and money creation should deep-six the dollar eventually. One of those people is another of my fave writers, William Pesek, who had this to say on Bloomberg. (this is just a snippet)

“It’s a bit rich for U.S. politicians to berate Treasury Secretary Timothy Geithner for not labeling China as a currency manipulator.

Perhaps Senator Lindsey Graham, a South Carolina Republican, hasn’t seen a newspaper in the last 12 months. With near-zero interest rates, the likely issuance of trillions of dollars of government debt and massive taxpayer-funded bailouts, the U.S. will soon make China look like a manipulation piker.

Memo to Graham and his ilk: Your economy has lost any moral high ground as it drags the world down with it. That will be even truer as the dollar eventually pays the price for ultra- loose monetary and fiscal policies. And it will.”

I do this from time to time, so that you’re not always just hearing from me on this stuff… I don’t want to look like the boy who cried wolf…

Chris Gaffney, who will be very bummed out this morning as his Blues lost again last night, sent me a story on Friday from the Economist. COM, regarding China… I thought that the story was very good in that it said quite a few of the things I’ve been saying about how China’s stimulus is working, and that China should be the first to come out of the global recession. (not that they’ve had a recession, but a slowdown)… There was one point the writer made that really hit home, and I hadn’t thought of… China’s stimulus is working because, the Chinese had complete control on where it went and how it was spent… Not the willy nilly spending going on here, and elsewhere like the U.K. and Japan…

OK… The data cupboard is relatively empty this week, with only Leading Indicators today, and Existing and New Home Sales along with Durable Goods later in the week. So… It appears that Corporate earnings will take center stage this week, and that’s not a good thing, in my opinion…

I’ll head to the Big Finish right after I mention that bank lending is just not happening… The Wall Street Journal reports that analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program. Hmmm… What they don’t mention is how many loan applications were denied! Look, it’s not just the banks fault for not lending right now… With 600,000 in job losses for 5 consecutive months, and unemployment running in the double digits (probably around 16%), and consumers leveraged up to their eyeballs, not many applying for loans are going to get approved given this scenario.

Currencies today 4/20/09: A$ .7075, kiwi .5615, C$ .8150, euro 1.2975, sterling 1.4580, Swiss .8550, rand 9.0440, krone 6.7834, SEK 8.57, forint 230.50, zloty 3.3750, koruna 20.85, yen 98.70, sing 1.5090, HKD 7.75, INR 50.25, China 6.8335, pesos 13.23, BRL 2.1930, dollar index 86.43, Oil $48.25, Silver $12.04, and Gold… $873.70

Source: More Dollar Strength

Good day… And a Wonderful Wednesday to you! I had a long time friend – once a colleague and teammate on the company softball team – send me a note from Credit Suisse yesterday, that called for an end to the European currency strength versus the dollar. I love getting this stuff because, as they said in the Godfather… Keep your friends close, but your enemies closer… Yes, I like to see “their” side of the story.

In this case, it’s not too far off… While I think the European currencies, led by the euro (EUR), have more room to gain versus the dollar, you have to admit that the bulk of the euro’s gains are in the rear view mirror. But before everyone picks up their phones to call and sell their euros… WAIT! Think about this for a minute… The euro is the second most liquid currency in the world. It has taken over as the offset currency to the dollar. So… If the dollar were still going to weaken (which C.S. admitted it would), then the euro would see the offset trade. And… If the Asian currencies take over as the next shoe to drop for the dollar, as I’ve said they would for two years now, then the euro would see strength on the flip side of cross trades.

I’ve explained these cross trades before, but for the new readers, let’s review… Class, get out your #2 pencils… Currencies are traded in “pairs”. You are always shorting one currency and going long another currency. As U.S. investors, your base currency is dollars, so when you buy euros or yen (JPY), you are shorting the dollar and buying euros or yen. But U.S. investors aren’t the only players in this arena. You have investors around the world that have a different base currency… So you end up with “cross” trades – currencies that cross each other in this arena. Clear as mud? Sorry… This is the way I know how to explain it.

So… Euros, for instance, could gain in value due to people buying yen… On the crosses… And so on…

Alrighty then… I’m sure this will all sink in as you sink your teeth into your morning Honey Bun!

This morning, the euro has added to its gains from yesterday, as the German Business Confidence – as measured by the think tank, IFO – unexpectedly increased this month. I was all set to talk about the IFO being the more important measure of the German economy this morning, so… Let me go ahead and do just that! Yesterday, we saw weakness in the ZEW report on economic expectations… But that didn’t hurt the euro too much. The reason? The markets put more stock in the IFO report because it measures “current conditions” and therefore can be used as proxy for the European Central Bank (ECB) and their interest rates projections.

I saw a report on the IFO’s correlation with the euro’s past moves to higher ground… Made sense to me, as strong IFO reports came out right before the euro moved past previous big figures… Could certainly be the case again for the euro, eh?

So… The 1.56 level was taken out overnight, and as I write, the euro is trading well above the 1.57 level. Again, it’s too soon to tell if this is a “true reversal” of the sell off the past few weeks, or a false dawn… But to me, it certainly looks like we’re heading higher once again, and the negativism toward the U.S. dollar is slowly creeping back into the mindset of the markets.

The commodity currencies of Aussie (AUD), Canada (CAD), and Brazil (BRL) all “have it going for them” these days. Shoot Rudy, the Canadian loonie doesn’t even have the high interest rate like Aussie and Brazil, but with oil hitting $129 yesterday, it doesn’t seem to matter. I think that the markets have fully priced in one more rate cut from the Bank of Canada. With that out of the way, and commodities booming, the loonie could shake loose the pull down from the Bank of Canada!

I’ve heard a lot of talk about how people believe this commodity bull market is the latest “bubble”. Hmmm… That may be… But historically speaking, we’ve got a ways to go (time wise) before this bubble pops! Remember a month ago, when I kept telling you that the mass media didn’t know what they were talking about when they kept saying the bull market for commodities was over? I don’t hear these guys spouting off now. I wonder where they went? To hide under a rock?

I’m not going to dwell on this… But it just didn’t make sense to me that the bull market in commodities was over… And, now, we know why it didn’t make sense! Because it wasn’t over!

Second in command, Fed Head Kohn spoke yesterday, and sounded quite upbeat about the economy. Singing Ray Stevens… Everything is beautiful… What else did you expect? These guys have backed us into a corner that has three roads out… And none of them are a road to prosperity! 1. Inflation 2. Deflation 3. Stagflation… Oh… And they all merge with the recession highway!

Anyway… Fed Vice Chairman Kohn, speaking about interest rates said, “[it] appears to be appropriately calibrated for now to promote both rising employment and moderating inflation over the medium term.” The markets took this statement to mean Kohn was telling us that the Fed is unlikely to lower rates further.

Well… Baby, baby, it’s a wild world… And it’s hard to get by on just a smile. Kohn should be reminded of these words when the Fed comes back to the rate cut table later.

Speaking of the Fed… We’ll see the color of their last meeting minutes this afternoon. This was the meeting that they cut rates from 2.25% to 2%. I wonder if these meeting minutes will be in line with the press conference that was held after the rate cut… The reason I say this, is the suspicion I have toward the Fed after reading Bill Fleckenstein’s book, Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve.

The Fed will also be releasing their new growth and inflation forecasts. This ought to be worth the price of admission folks. What yarn will they spin for us? I’ll bet they tell us the future is so bright we gotta wear shades! And inflation? Don’t worry about it! Yeah, when the Fed says, “Don’t worry about it” you had better run for the hills!

How about gold? Did you see that rise in gold yesterday? When I left it was up over $15 on the day. The London Exchange issued a report showing that demand for gold was down 16% in the first quarter. That makes abundant sense given the losses gold put on the books in the first quarter… But now that the markets are coming to their senses, and the dollar is weaker (while oil continues to set records every day), gold is back in demand.

And speaking of gold… Remember about a month or so ago, I told you about how the dollar’s weakness had caused so much loss of purchasing power for us, and illustrated it with this: If you purchased oil with euros instead of dollars, the price increase in oil would represent 92%, which sounds high right? Well, since you don’t purchase your oil in euros, but dollars instead, your price increase represents a 319% gain! Well… To take this exercise one step further… If you had purchased your oil with gold, your price increase would be 57%! Now tell me again, how gold isn’t doing its part to provide an inflation hedge?