18 February 2008 - 23:24Market Commentary 2/18/08

Happy Birthday Mr. president, happy birthday to you. I hope you are all enjoying the honorable Mr. Washington’s birthday and celebrating in style. The dollar was able to stage a minor rally on Friday even as consumer confidence plunged far more than expected. Sadly this adversely effected my USD/JPY short recommendation but it was due mainly to dollar buying rather than yen weakness. In fact the GBP/JPY fell about 1 penny soon after my recommendation as it failed 211.79 the 38.2 percent retracement of the low set in September of 2000 and the high made in July of 2007. Perhaps the dollar buying can be explained as a wave of patriotism in remembrance of the man who’s countenance graces the $1 bill. It certainly isn’t the economic fundamentals driving the dollar as the picture is as gloomy as ever. Could be a long term case of buy the rumor and sell the fact since the news of a recession in the U.S. is not exactly news and the dollar has already dropped a lot. Perhaps now the big boys at the banks and sovereign wealth funds are exiting dollar shorts and cashing in while poor suckers late to the game are just jumping in on the dollar selling bandwagon. This seems to be a likely scenario judging from prior market corrections. On the news front the Japanese Tertiary Industry Index came out much worse than expected last night and this helped the dollar consolidate gains against it. The UK RightMove index came out showing strong growth in home prices which helped the Pound out initially but it could not crack $196.50 and also caved in against the greenback. Tonight’s Japanese numbers came out in line with expectations and retail sales are still to come in an hour. the RBA released their meeting minutes and they were quite hawkish, stating that inflation was broad based in the Aussie economy and that the economy was very healthy overall. They even contemplated raising by 50 points instead of 25 so it is not wonder that the Australian Dollar received a lift tonight. This is what you would expect to hear from a bank who is raising rates and rightfully so since the slowdown effecting the western world has really bypassed the blokes down under. The Aussie is struggling with $.92 right now and is poised to retest $.94 now that it has broken key resistance at $.9175. Interestingly, they mention that there are increasing price pressures inside China and that this inflation may be passed along in the form of higher export prices in the future.  They also pointed out that write downs so far from the sub prime scandal had reached $120 billion so far and that if it were not for sovereign wealth funds in Asia performing cash transfusions that these big banks would be belly up. They also pointed out that the blood bath was not over yet because of the inaccurate ratings being applied to junk bonds which have been rated double or even triple a. If the bond insurers collapse a world of hurt is bound to be in store for the financial industry. Be on the lookout for skydivers without parachutes in financial centers around the world if this happens.