Ralph Shell @ 1:30 PM, Thursday August 26 2010
The steady barrage of bear news was interrupted today when a few numbers came in better than expected. In Britain, the CBI Realized Sale, a survey of sale by wholesalers and retailers was 35, well above the expected 23 and 33 in the previous period. The US unemployment numbers, at 473k, were better than the expected 488k and an upward revised 504k in the previous period. There had been some small equity gains overnight, but these numbers were not good enough for a continued rally.
Tomorrow morning we get some GDP numbers from Britain, expected to be a positive 1.1% and the US, where a 1.5% gain is expected. The real news, however, will be from the posh Jackson Lake Lodge in scenic Jackson Hole Wyoming where a sold out crowd of Central Bankers are assembled. A Friday morning speech by Ben Bernanke is scheduled to be the meeting's feature attraction. Japan, whose leaders have proposed a G-20 intervention, to halt the raid appreciation of the yen will be represented by the President of the Bank of Japan, so their plight may be discussed. The real question is what additional monetary measures can employed to stimulate the economy when there is already so much cheap easy, money.
Some interesting comments, and perhaps a possible solution to the current malaise were made at another meeting in the Rockies at the Aspen Institute. In a CNET story this morning they reported...."Intel’s CEO, Paul Otellini, at the Aspen Institute and his thoughts on government making it too difficult and too expensive to hire people … namely that unless government policies are altered, he predicted, “the next big thing will not be invented here. Jobs will not be created here.” He says......
Take factories. “I can tell you definitively that it costs $1 billion more per factory for me to build, equip, and operate a semiconductor manufacturing facility in the United States,” Otellini said.
The rub: Ninety percent of that additional cost of a $4 billion factory is not labor but the cost to comply with taxes and regulations that other nations don’t impose. (Cypress Semiconductor CEO T.J. Rodgers elaborated on this in an interview with CNET, saying the problem is not higher U.S. wages but antibusiness laws: “The killer factor in California for a manufacturer to create, say, a thousand blue-collar jobs is a hostile government that doesn’t want you there and demonstrates it in thousands of ways.”)
Problems like those discussed in Aspen cannot be solved by monetary measures, but in time, and after economic setbacks perhaps the situation will change.
Recently there has been a lot of concern about the unstable nature of the euro, given the diverse group of members in this union. Best to get short now before the euro implodes, some have urged. Yes the euro has a lot of problems but there is also pride, money, and vested interests who want to keep this union together. Flawed though the euro concept may be, this does not mean that adjustments in taxes and laws remain the same if the destruction of the union is at stake. Problems too, exist in the US so we may have a least ugly contest. The debt problem is a universal issue, and cheap rates will not provide a permanent sanctuary for the big spenders. Like the future of the euro this is a long term issue, and in forex it is easy to stumble over today, even though you have a clear view of the distant future.
How do you trade the euro today. The market acts like it is trying to forge a bottom, unless this pair can trade below the 1.26 handle in the next few sessions. There had been some spec money flowing into the short side of the euro. Friday's COT report should show us if this trend has continued. If the weekend were not fast approaching we would be inclined to buy the EUR/USD in the 1.2650 level with a fairly close stop and see if we can get a move back to the 1.28 area, but we may just rest ahead of the weekend. The following is a 1H chart.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.