Has the Dollar Already Turned Higher?
The current trend in USDJPY on the Daily Chart is now higher. And there may be good reason why this trend could continue, foremost being China. There is one hole in the “Chinese Economic Miracle” story and that is how did this economy weather such a large drop in exports in the 1st half of the year, and still manage to put up such impressive GDP numbers in the second half? The answer is going to be similiar to that of how did the U.S. stock market appreciate over 15% year to date while the U.S. economy lost over 4 million jobs? Do not underestimate the hot hand of stimulation.
If there is one thing we have seen clearly this year it’s the ability of governments to get what they need out of markets. The U.S. announced its stimulation plans in February and global stock markets dutifully turned higher in March. European banks were on the hook for billions lent at 150 and points north and threatened with being paid back at 125, and le Euro has now made it back to 150. This all proves a point that kids learn early on here in Chicago: “you can’t fight city hall”.
But in Chicago, the city worker who owes his job to the boss, who happens to be his brother-in-law or Uncle, still has to show up most days and do his job. Similarly, at some point global stock markets are going to have to try to stand on their own without the benefit of government intervention. Which brings us back to the fundamentals at play in the pricing of the Greenback versus Asian currencies. It seems to me that we are getting closer to that point where there is just too much that has to keep going right to keep the Chinese economy humming, the U.S. stock market strong, and global bankers in the black. Even a normal retracement in stocks and the dollar at this point could have an exaggerated effect. A dollar correction would inflate the Chinese currency at the same time unsold products are piling up, and regional trade competition is fierce. Meantime fund managers around the globe have to be fighting the urge to book their profits and be done for the year. And with stock market volume so low even a modest correction could pick up steam quickly if just a small percentage of longs went for the exit at the same time.
The number to watch going forward is 92.50 in USDJPY. A close above that level would paint a picture of higher highs and higher lows which would mean more than just a dollar retracement.
At a point sooner rather than later Central Bankers and other economic czars have to step back and see if the economies they’ve so succesfully supported can peddle along on thier own, if only to gauge how much stimulant would be needed following the next possible panic.
Jay Norris
www.trading-u.com
For a complimentary one on one tutorial on how we gauge market trends e-mail us at jnorris@brewerinvestmentgroup.com
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