Here are some charts that tell the whole story. No one seems to want a strong currency!
- The rally in the EUR, JPY and CHF will hurt exporters in Europe, Japan and Switzerland.
- A weak USD meanwhile, will boost US exports.
- The Chinese have thus far resisted any significant appreciation in the Chinese Yuan.
USD CHF : The CHF broke down below parity in its recent rally vs the USD
USD CAD : It came ever so close to testing parity vs the USD
USD JPY : Despite the efforts of the Bank of Japan to weaken the JPY, the JPY continues its relentless upward march.
EUR USD : A weak EUR helped boost Germany's GDP numbers last quarter. the recent rebound in the EUR will surely make life difficult for the Club Med nations
Conclusion:
The USD appears to be oversold in the near term and a counter trend rally is underway. The market is betting on some mega fire power solution from the US Fed at its meeting in November. If QE2 disappoints and the equity markets sell off, the USD could stage a much stronger rally!
The Equity markets have been getting far too complacent about the weak and worrying news data and unemployment numbers in the US.
Fund flows to emerging markets have boosted stock prices across the board and a correction is well overdue. These markets are ''not decoupled from the actions of the US Fed'' and when the tide starts to turn we can expect large fund outflows to have a drastically negative impact on stock prices in emerging economies
Lastly, the rally in Gold prices also appears ripe for correction and consolidation. Silver prices too, are clearly overstretched in the near term. expect lower prices if the USD stages a comback rally. It's not time to be buying the precious metals sector just yet!
Watch this space!
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