What's Going On Under the Table With the Plunge Protection

Joined : 23 Dec 2007 Posts : 241 Location : Nigeria

Today's commentary is by Chuck Butler, President of EverBank World Markets.

Good Day Currency Traders! Very Happy

Well, it was a wild trading day in the currency markets after the Jobs Jamboree report was printed on Friday. The euro took off and flew like a bird in the sky. It ran up to its all-time high of 1.4965. Laughing

And then, something happened. The dollar rallied again. Some analysts will say that the plunge protection team (otherwise known as the Fed) stepped in to protect the dollar from this free fall. But I think it was probably a technical level indicating profit taking. The turnaround came so quick, and so hard, that you can see how it was thought something happened "under the table."

If you are a "believer" in "under the table stuff" you could easily point to how quickly the euro fell, after awful U.S. data. And you could say: "the Fed doesn't mind seeing the dollar weaken, they just don't want to see it fall so quickly." You wouldn't get any argument out of me if you did say that.

Just When You Think the Jobs
Report Couldn't Get Worse
For the record, January's Job creation was a negative 17,000. That's right, we lost jobs in January compared to December's gain of 18,000 jobs. Now, December's awful number was revised up a bit, but the rot is on the vine here, and it's being exposed.

The report also said 1.38 million people were unemployed for six months prior to January. The last time numbers looked that bad was after the 2001 recession. Neutral

The ISM manufacturing index came in a bit stronger than expected, right at 50. But before we close the books on this, I'll bet a dollar to a Krispy Kreme donut that this number gets revised and comes in lower next month.

It will take more than some shallow U.S. data to get the euro past 1.50. For instance, we'll see the European Central Bank (ECB) and Bank of England (BOE) meet this week. Once again, I expect the BOE to cut rates, while I expect the ECB to keep rates to stay unchanged. The ECB press conference following the meeting will be very important to the euro's direction this week.

The Com-Dollars Hold Up -
Even After Commodities Fall
Aussie and New Zealand dollars ended last week on a high note, and harmonizes with their high yield. Even with commodity prices falling at the end of last week, these two com-dollars put in good performances. High-yielding rates is what it's all about here folks.

And guess who's coming to dinner? The Reserve Bank of Australia (RBA) meets this week to discuss rates. I previously said that I expected the RBA to hike rates at their next meeting, and this is it! My expectation that they would hike rates has dimmed a bit here but I still think the RBA will do what's right to fight inflation in their country. But we'll see, eh?

Speaking of commodities, gold was down over US$20 on Friday. Well, once again, you've got to realize how fast gold moved last week through one record after another. There had to be some profit taking, etc. But now, a nice base has been made for gold's next move up. At least that's how I see it!

I heard an interview this weekend with a guy who believes the U.S. has somehow avoided a recession because of the Fed's rate cuts and strong money supply. Hmmm, I wonder if this guy ever did any research on Japan's situation in the 1990's.

Jimmy Rogers was back on the tube this weekend, saying that "The guy (Bernanke) doesn't know what he's doing." Of course Jim Rogers has not been a fan of Big Ben's.

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Making 'Cents' of the Headlines
What to Look Forward to at the G-7 Meeting This Weekend

From Currency Director: Sean Hyman

What's Happening:

You know things are tank out there in the markets when all of the world's biggest central banks have to "team up" to stop the global recession threats.

What I Say:

It also shows how likely a global recession really is right now. After all, if it were only a 30%-40% chance, then they probably wouldn't resort to this type of a measure. However, I bet it's more like a 70% chance or more and that's what has got them scared. affraid

So this Saturday, they'll all meet in Tokyo to discuss all of these woes and how they can help to do their part in solving it. They're going to have to come up with something "over and above" what they are doing presently.

They may have to end up bailing out "non-performing loans" and possibly even propping up stocks if it got to that point.

So with all of this "saving of the world," expect budget deficits to blossom. This is why they probably should have widened the scope of the meeting to the countries that are growing the fastest and have the biggest trade surpluses such as China, Russia, South Korea, etc.

Don't get me wrong, these three will get to discuss the Asian markets. However, they should probably widen out the "club" to include these countries in times like this.

Besides, there's going to come a day where the G-7 will include some of these countries anyway. Eventually these countries will pass up the mature industrialized countries that are already on the decline.

So don't get me wrong, everyone's not "twiddling their thumbs." The Bank of England, Bank of Canada and U.S. Fed have all cut interest rates making money cheaper. The European Central Bank and the Swiss National Bank have been supplying more cash to the markets to "ease the squeeze."

The U.S. and Canada both have tax cuts or government spending programs in place. For instance, the U.S. has proposed US$150 billion in rebate checks that should mail out between May and July. Meanwhile, Canada initiated a five year, C$60 billion tax cut.

So programs are in place, and the markets will eventually be saved. bounce

But that day is just not today. Don't be too hasty to jump into new stock investments just yet. However, do look for good pullbacks in the Japanese yen or Swiss franc. These two currencies love these dicey moments right now.