Today’s data releases prove the point that currency valuation in the forex market, effect national output and wealth distribution. Canada’s GDP for example shows strong domestic demand yet poor results for retailers. Canadian shoppers and businesses who are flush with cash from the commodity boom economy north of the border turned to the states and other countries to do their shopping. Smartly they are taking advantage of their currencies current strength. This in turn shaved off about 1.5% of off GDP and their exports were also stunted. Inventories at retailers ballooned and manufacturing slowed down. Meanwhile the Swiss saw better than expected GDP released as well as an upward revision to last quarter’s figure due mainly to exports to the rest of Europe where the strong Euro makes it advantageous to buy Swiss products. Not surprisingly, Euro area retail sales also fell. Inflation in Switzerland also picked up, quite possibly due to all the foreign purchases. Expect more hate hikes from the SNB as long as there is a significant difference in the value of the Euro. If the carry trade is indeed collapsing this is one more nail in its coffin. Meanwhile in the U.S. PCE expenditure was a bit higher than expected and this leads the markets to a dollar positive outing. Strong Chicago PMI also helps make the case for a rallying dollar although weak construction spending points out the housing situation once again. Everyone already knows about the housing issues in the U.S., the real question is has the mammoth meltdown which has hurt developers and their banker buddies as well as homeowners been fully priced into the market. My answer, no. But don’t expect the dollar to collapse overnight either, with PCE coming out the way it has and inflation rearing its ugly head the Fed may not have the luxury of cutting rates again soon. This is reason enough for some people to buy dollars, but don’t expect that sentiment to last forever. Inflation is not a good thing, and doesn’t always support a currency due to expected rate hikes. There is a healthy looking wishbone pattern forming on the daily charts right now but this move appears to be just about over. Look for the dollar bears to emerge again next week.
