Look what the dollar is doing this morning

[HenryTo]

http://www.futuresource.com/charts/charts.jsp?s=DX&o=&a=D&z=610x300&d=medium&b=CANDLE&st=

Hope I haven't jinxed myself here - the U.S. Dollar Index is trying to pierce the early February and mid-April resistance as we speak.

Henry

[Dubious]

Thanks Henry.

Appears the intl trade report is going to be a real stinker by the reaction of the USD currency traders.

No one know ahead of time.

[HenryTo]

Problem fixed.

[Dubious]

You got a spammer on board.

[nodoodahs]

Henry,

Yes, you and me both thinking about the Yuan. Just my thoughts ...

1. I believe the Chinese government will allow the Yuan to move within a trading range, small at first and then expanding. Perhaps they will set up a basket of asian currencies to trade vs. the dollar, much like the dollar index. When this happens, there will be a nice, short-term spike in the value of the Yuan (and any other currencies in that basket) vs. the dollar.

2. Timeframe for this will be no earlier than the perception of U.S. "pressure" is lessened, as the Chinese will not want to "lose face."

3. I further believe that China will want to collateralize their dollars in some positive way, as many as they can, before allowing the Yuan to move too much.

4. All of this may happen in terms of some international agreement. See http://en.wikipedia.org/wiki/Plaza_Accord for reference. There may be some other things U.S. has to do to get this deal done.

5. Currently Yuan speculation is rampant and it may be nigh unto impossible to play the Yuan directly. Because of rampant speculation it may be easy to lose money playing it directly, and the government might get involved in foreign holders and their holdings (!).

So, how do we play this monster? I would think that we want long-term and cheap exposure to the Yuan and currencies most likely to appreciate with the Yuan, like the Won, etc., but NOT THE YEN. Long-term and cheap makes a direct FOREX play less effective IMO, but I could be wrong. Perhaps an Everbank http://www.everbank.com/main.asp?affid=eb account might be the way to go, or foreign treasury bonds.

Of the funds I mentioned on the previous post, the Franklin-Templeton has the most exposure to Asian non-Yen currencies. I have been holding some of this in antici ........... pation (shameless Rocky Horror reference) of the Yuan revaluation.

BTW if you want to leverage the dollar index increase, look into RYSBX the Rydex Strengthening Dollar Fund. They have a Weakening Dollar Fund as well, RYWBX.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[HenryTo]

Bill,

No apologies needed! I am still thinking long and hard about the Chinese Yuan/Renminbi. On the one hand, it is clearly overvalued, but on the other hand, everyone and their neighbors are bullish on the yuan. Moreover, what happens if they do let the currency float? What if there were no significiant restrictions to capital inflows and outflows?

Well, what if you were a very wealthy person living on Mainland China? Why, the authorities can freeze your assets with no warning - especially if you lose friends in high places. If you were a wealthy person, what would you do? My guess is to either park a significant chunk of your wealth in Hong Kong, the United States, or Switzerland. The potential of capital flight is there - and should be taken into account when "investing" in the yuan.

This is more of an email to everyone else than Bill. Bill, keep up the great work! We all appreciate it.

Henry

[nodoodahs]

I wasn't really trying to "find fault" with the dollar rally, I apologize if that's the impression I gave.

I had done a little research the other day for diversifying out of the dollar, without necessarily going into FOREX trading. You know me, I'm a do the research and park the money kind of guy. Currently there are six funds I know of that provide this outlet. What I am interested in is capitalizing on the dollar long-term fall and hedging for a yuan revaluation, without having PM exposure added by the fund, since I have that outside the fund. There may be better ways than investing in a hard-currency fund, but that is what I am doing today (may change, may not).

http://online.wsj.com/public/article/0,,SB111973826050669598-lYT7rNivLEwaak3YQKRl6mNWxAc_20050706,00.html?mod=rss_sunday_smartmoney

MERKX
Uses ETFs for gold and uses forward currency contracts
Weighted average portfolio maturity of 90 days
Management fee of 1.3% annually, no load
Minimum initial investment of $2500
No significant history of performance (new fund)
Currently 49% Euro, 20% Gold, 15% Aus$, 10% Pound, 5% Sw Franc.
Not a good place to capitalize on the Yuan if you ask me.

ICPHX
Same wtd avg maturity
Currently 17% Euro, 13% Can$, 11% Sing$, 10% Swed Krona, 10% Aus$, 9% New Z$, 7% SK Won, 6% Thai Baht, 5% Norw Krone, 13% Other. Better mix IMO. 46% Asian currencies with no Japanese Yen. Not as much overlap with gold. Unfortunately no Yuan but the Chinese government may be preventing that.
Management fee of 1.24%
Mostly cash and bonds, foreign treasuries.

The other funds all are weighted to the "Dollar Index" and therefore can't take up with the fall of the dollar vs non-anglo currencies. USDX = 57.6% Euro, 13.6% Yen, 11.9% Pound, 9.1% Can$, 4.2% Swed Krona, 3.6% Sw Franc.

Like I said, not trying to find fault with the rally, but maintaining that the rally is directed towards certain currencies and not toward others. Maybe 2 parts "rally" and 3 parts "no confidence vote in Euro." I am not really a fan of the Japanese Yen since I think they manipulate in "friendly" ways to the U.S.$ and their fundamentals are worse than the U.S.

I still have a FA "to do" on currencies but I have been focused on oil for a while now due to some "peak oil" arguments on another discussion forum.


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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[collies_99]

By EW count, the current reaction should retrace between 38.1-61.8% of the last 3 year decline of the USDX, for the fall from 120 to 80 on the USDX. That gives a top target in the 100ish level.

87 on the USDX should not be broken. This level should represent good lateral support.

The current USD rally may end by Q4 2005 or Q1 2006. That should bode well for the US market until the USD tops, baring that oil commodity should put in a top soon. Oil to retace back to mid 45ish ?

On the backdrop of a rising USD, can it be that foreign investors will propel the market higher as per the Clinton era where a strong dollar coupled with monies from abroad drove the markets to dizzying height at which they strove to attain protection from domestic currency depreciation and that finding that all ellusive market gains at the same time? A double whammy sort to speak.

I peg the last market down turn (2 major triple digit days last week) as wave-x and we are due for more choppy market gains in the formation of a second set of a-b-c.

Food for thought.

Cheers and good luck all.

[HenryTo]

Bill,

The Asian currencies and especially Asian emerging market currencies are still very undervalued compared to the U.S. Speaking of currency manipulation, the combination of currency manipulation of Japan, Malaysia, South Korea, etc, is significantly more extensive than the "currency manipulation" of China. If one wants to diversify out of dollars, I would go for the Yen and maybe the Won - and not the Euro.

There is really no "perfect rally" when it comes to anything. You can find a lot of faults with any rally if you choose to do so. While the Administration will want to see a lower Dollar going forward, I think the rally still has more room to run on the upside - said range being 92 to 97, as I outlined in our commentary.

Henry

[nodoodahs]

USDX = 57.6% Euro, 13.6% Yen, 11.9% Pound, 9.1% Can$, 4.2% Swed Krona, 3.6% Sw Franc.

See earlier post about dollar weakness vs. non-anglo currencies.

Copper prices may be due a correction. They are significantly above the "estimates" made by analysts, but a correction would most likely still leave them higher than expected as of Dec '04.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[HenryTo]

Dollar Index is at 89 as I am typing this. My guess is that we will see >90 pretty soon. The Market Vane's Bullish Consensus for copper is is now at 79% - suggesting that at least a correction is in order.

Henry

[nodoodahs]

The dollar rally of late seems to be directed towards only the "anglo" currencies (oh, and the Yen, but they are in our pocket so to speak.)

Here are some countries whose currencies that the dollar is down against over the same time that the dollar has been beating up on the Euro:

Brazil
Hong Kong
India
South Korea
Taiwan
Mexico
Venezuela

Also we might consider the dollar's performance against these:
Gold
Oil
Silver
Platinum
Natural Gas
Copper
_________________
I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

http://www.bcaresearch.com/public/story.asp?pre=PRE-20050614.GIF
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[Dubious]

Austraia and New Zealand have inverted yield curves be careful sticking a toe there.

I believe the Euroland falling apart will impact the pound.

Just my thoughts.

Happy trading!

[nodoodahs]

I haven't honestly been watching foreign bond yields, and had to look them up this morning. Swiss is 1.90, Sweden is 3.07. As mentioned Euro and Yen are low. However, Bloomberg shows a 3.90 for Canadian 10-yr bond. Australian yield is 5.22 for 10-yr. British yield is 4.32 for 10-yr. Note the dollar is falling versus both Aussie dollar and Pound in the last 3 and 6 months.

My exposure to foreign treasuries is currently in Franklin Templeton Hard Currency Fund. That, and the Prudent Bear currency product are the only two like it that I know about.

No fiat currency "floats" - they all sink, just at different rates. I agree with Pete that U.S. policy will be to devalue the dollar faster than other currencies are devalued by their governments, although I'm not sure we have complete agreement on the whys and hows. I've posted mine but am curious about Pete's. (hint).


Short term, anything could happen. Medium term I think the dollar will go down. Long term I'm certain of it.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[Dubious]

Like Greenie says only game in town for yield.
Japan 10 year 1.22
Euroland not much better plus currency risk.
U.S. treasures for those world wide pension funds.