Home 
Daily Jurojin Archive
Daily Jurojin Archive
| Daily Jurojin - Thursday, June 25, 2009 |
 |
 |
Thursday, June 25, 2009 Jacob's ladderWith eyes glued to the trading screen for a brief adrenaline kick at the dojo today, your editor watched the reaction of the dollar in the 30 seconds after the FOMC announced an unchanged policy stance. When we say 'unchanged' we mean that absolutely every last detail was unchanged in the regard that the Fed stood behind the existing value of treasuries and mortgages that it previously announced it would buy throughout 2009. There was little changed in terms of the Fed's outlook. Its perspective that the economy seemed to be a little better for choice than at its last meeting seemed no reason to cause a ripple since investors had been busy responding to such data through buying equities.Trying to make sense of a dollar rally in the vapor trail of their position made little sense. The dollar accelerated most sharply against the Japanese yen, running up from Jpy95.25 to 96.05. Against the euro the dollar rallied from Eur1.3990 to 1.3915 all in about 30 seconds. Anyone accustomed to avidly watching forex quotes knows that they rock back and forth even as they trend in one particular direction, but Wednesday's sight was like watching a fleet-footed angel scale Jacob's ladder high into the sky. It was all one-directional. Arguably a better perspective on the economy from the FOMC should weaken the dollar. We note the recent equity rally on an improved outlook has caused the dollar to weaken against the euro from Eur1.30 to 1.40. And each day when risk appetite rises, it's met with dollar dumping in favor of higher yielders. CNBC's Rick Santellli, live from the Chicago pits moments after the announcement blamed the movement in the yen on stops being triggered. We can only say a fool would have left an order active in the middle of the trading range at that time. The market was merely ebbing and flowing within an established intraday range. In fact the dollar set up was a classic episode of buying the rumor and selling the fact. You have to remember that the dollar weakened materially on Monday and Tuesday and reached a one-week low early Wednesday against the euro as investors fretted that the FOMC might actually announce an add to their previously stated bond buying tab currently running at $1.45 trillion. So the fact that the dollar rallied in the aftermath shows a tremendous flow of hot money that was dead-wrong in its bet against the Fed. The question is now what? Will the dollar continue to weaken as risk appetite returns or will the previously dominant view that the U.S. economy being the first to recover would see the dollar strip the euro bare? That question has serious implications for the commodity market. An early rise in gold on Wednesday immediately lost its luster as the dollar flexed. Meanwhile, gas and oil prices were already responding to earlier bearish supply data. On occasions energy products have been able to march continually higher in the face of contrarian data, as dealers pinned the weaker dollar as an excuse to keep buying. The next few days could be critical. A buoyant dollar could thwart advancing commodity prices, which were already on the cusp of a correction on account of the setting in of a reality that economic expansion would be slow. A dollar rally could really see Jacob's ladder lose its footing. The Supreme Council of the Secret Order of Jurojin |
