NFTRH 396 Exerpt: Currencies and Economic Data

Another NFTRH 396 excerpt, not for publication elsewhere.  It is a companion to the discussion about the Semiconductor sector and the economy as well as other economic discussion that took place in #396’s rather comprehensive 38 pages.  If you’re going to cover the markets you’ve got to cover the markets!  Not do a fly by and expect people to believe you just because…

Currencies

currencies

Currencies and Economic Discussion

What do I see in the chart above? I see that USD double topped, trended down (as first gold and then the whole ‘inflation trade’ bounced) and ultimately crashed support at the same time several commodities (and silver and gold) were making tops (of some variety).

I see Uncle Buck putting on a furious whipsaw below apparent support and bouncing, which we anticipated with a ‘bounce’ target of 94.50. But given the mini hysteria on Unc’s drop and Janet Yellen in full frontal USD antagonism mode, we noted that the bounce could extend. Today it has marginally extended, to 95.29. It has also put in a slightly higher short-term high. USD may not be done on the upside.

The Canadian and Aussie dollars are acting that way, at least. Euro is just lamely going nowhere below resistance, the British Pound is knocking on resistance’s door as is the Yen. The Yen especially is in an intermediate bullish trend. We’ll see what the BoJ has to say in the coming weeks or months.

The bottom line however, is that USD plunged and then found support. As we have noted previously, that was the 2005 high. I’ve marked this chart up as such. The dollar remains in an intermediate downtrend and commodities are generally trying to establish intermediate up trends. So I think that a coming ‘inflation trade’ remains the most likely outcome. Deflation seems played out.

But we may be looking at a late spring/early summer ‘expectations management’ phase, which may have begun with Cramer jumping up and down on TV about the beast known as Yellen. I give weight to the prospect that markets may be in no mood for interest rate hike talk come mid/late June and also that the Fed may not be either.

So bringing it all around again, what the heck is the Semi sector signaling, if anything? Let’s see what the Semi equipment book-to-bill data say for April and of course check other data as it comes in. The last employment report was weak. Last week’s Empire State Manufacturing was negative vs. positive expectations.

empire

Next [this] week the raft of data includes Markit PMI, New Home Sales, Jobless Claims, Durable Goods, GDP Revision and Consumer Sentiment. In other words, it is a full slate of items for the markets – and the Fed – to consider. Let’s develop the story and either remain on the preferred gold sector theme of counter-cyclicality, or the inflationist theme of inflationary growth. Those appear to be the primary candidates at this time.

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