ForexTV Market Vision w/ Tim Kelly

As debate on US Economic Fix Rages, Dollar Marches toward Record Low

US Treasury Secretary Paulson on Monday issued a few candid comments on the economy:

"few regulation changes will happen until market crisis ends; housing correction necessary, inevitable; strong USD in US interest; strong economic fundamentals will be reflected in USD."

The candor of Paulson's statements underscores what I consider a long overdue dose of tough medicine, and tough love. Meanwhile, according to Reuters "the Democratic Chairman of the U.S. Senate Banking Committee on Monday called the Treasury Department's plan to overhaul financial regulation "a wild pitch" that fails to address the housing market crisis. Senator Christopher Dodd of Connecticut said he welcomed the plan offered by Treasury Secretary Henry Paulson, but questioned its relevance in addressing falling home prices, rising foreclosures and the imminent threat of recession."

I am still trying to understand 1) why it's the government's job to directly affect and/or influence the price of real estate in the US, 2) how in a capitalist society a government official should do that?  In the U.S. the price of any asset is determined by the prevailing market dynamics of supply and demand.  Are we next going to see the government prop-up the share price of companies on the stock exchange?...Oops, forgot about Bear Stearns...they did try that.  That worked real well.  It is time to let the market correct itself!

The political dialogue in the US during this election year is as ridiculous as it gets. You talk about fiddling while Rome is burning…?

Ok, so while this debate rages on, Dollar is poised to succumb to all-time low levels against the Euro. On ForexTV's March 31 PM Exchange program http://www.forextv.com/Forex/Commentary/ShowStory.jsp?id=14548&category=2 Bank of New York/Mellon's Michael Woolfolk suggests that the upper short-term range for Euro is 1.61. If we break 1.60 and non-farm payroll disappoints later this week Euro could break into even higher levels. I recommend reading an article from a ForexTV contributor, Brewer Investment Group for an insightful call for the week ahead. http://www.forextv.com/Forex/Commentary/ShowStory.jsp?id=14545&category=1 .

From a technical standpoint, please visit the ProSticks page at http://www.forextv.com/Forex/Commentary/ShowStory.jsp?id=14548&category=2 

Forex Market Opener - Monday March 31, 2008

Euro - EUR/USD Spot has continued to trade inside broader ranges into the new week with early European action keeping spot pivoting the 1.58-mark. This is a key week with quarter-end and Japanese fiscal year-end, as well as a very full economic calendar schedule this week; including US non-farm payroll report.  The USD is poised for a short-term rebound according to our ProSticks analysis, and after the strong drop this year.  However, there is overwhelming down-side momentum working against the USD and the US fundamentals support the momentum.  This is a classic demonstration where the trend should be respected.  Bold traders will trade on the 2 hour chart, wise traders will sit out and wait for the new trend to emerge.

We are still in a downward interest rate trend in the US and no real possibility of ECB easing on the current year horizon. 

Daily Euro Briefing Page on ForexTV.com

Yen - USD/JPY Yen is in a sideways trend within a broadening range.  An excerpt from our ProSticks Analysis sums it up

"Expect US to side-way congest around par. Since market is below daily, weekly and monthly’s kumo, we are bearish bias. Sit tight with short with 103.20 stop."

(Prosticks page )

The weakness in the Japanese equities markets should be monitored closely throughout the week to gauge the effects of the new fiscal year.

Daily Yen Briefing Page

Dollar Rebound A Near-Term Possibility On Responsible Global Citizenship?

The regulatory proposals released by US Treasury Secretary Henry Paulson yesterday show a side of the current US Administration that does not get too much attention...or credit.  First, the swiftness and precision in which Administration and Fed officials coordinated relief, regulatory and monetary policy initiatives is the foundation of why the US remains the world's leading economy...and why a recovery may come about sooner than expected.  Furthermore, Paulson's recommendations, based largely on models developed in the UK, Australia and The Netherlands underscores America's emerging role as a good citizen (and student) in the global economy.  Citing an aging and increasingly irrelevant regulatory and oversight infrastructure Paulson stated,

"Now, however, maturing foreign financial markets and their ability to provide alternate sources of capital and financial innovation in a more efficient and modern regulatory system are pressuring the U.S. financial services industry and its regulatory structure. The United States can no longer rely on the strength of its historical position to retain its preeminence in the global markets. "

The proposed regulatory changes advocate an "objectives-based" approach they also seek to combine the agencies of the SEC and the CFTC and give the Fed sweeping authority, but Paulson notes his desire to adopt several of the "Principles-based regulatory philosophies of the CFTC" and states, "Treasury would like to preserve the market benefits achieved in the futures area."

The full presentation and proposal is due to be released on Monday.  While many of the proposed changes will be longer-term and will extend well beyond the scope of the present administration it is a very positive step in the right direction for the US and for the global economy. 

In the short term I would expect further US Dollar weakness, but traders should take the recent steps by the US seriously as the possible beginning of a turnaround.  The US economy has a host of serious obstacles to overcome and is in a very vulnerable stage and any unforseen aberations could disrupt the recovery.  In any case, the steps taken by the Fed along with the Administration's stimulus measures may have been enough to soften or even avoid what could have been a deep recession.  In the face of a secular global  economic restructuring, and a series of deep domestic economic crisis the US is showing resiliency.

Related Stories:

Video:  My interview with Ashraf Laidi, CMC Markets on US economy -  http://www.forextv.com/Forex/Video/Video.jsp?channel=41&movieid=36191

What Next For the US Economy? What next for US Dollar?

The best news so far for the US economy this year was that the US economy narrowly escaped a recession last year.  With jobs and wages trending downward along with interest rates, food and energy costs on the rise and a lingering monetary crisis, the prospects for the US Dollar are not good.  This week the dollar succumbed to Euro strength at a rapid pace.

Fundamental weaknesses in the US are not the sole cause of recent dollar weakness.  While the Fed and the Bush Administration mobilize their stimulus and interest rate strategy to fight-off recession, the rest of the industrialized world seems united in their effort to press interest rates higher to fight inflation.  This will put continued pressure on the dollar in the short-term, but the monetary policy efforts in the US may be showing some signs of being effective as most other currencies did not follow the Euro activity.

We are in uncharted territory from a technical standpoint as most trends have been broken and most models need time to reset at these levels.  But common sense also suggests that the rapid fall of the dollar will pause and/or retrace from time-to-time.  It is unclear yet whether the failure of most of the majors to complete retracement patterns is wariness of a pending monetary intervention by the G-7 or just a pause on the way to even lower levels.

This week I interviewed Ashraf Laidi of CMC Markets, Joseph Trevisani of FX Solutions, David Powell of IDEA Global and Korman Tam of MG Financial on ForexTV's PM Exchange.  To the last man, it was unanimous that we were going to see higher Euro in the short-term...potentially as high as 1.75.  And equally as united that one year could see a recovery to 1.45.  OK, I admit, that's not going out on a limb from a trader's perspective.  But it is an indication of how far from we have moved into unfamiliar territory.

Forex Video Links:

Trevisani: http://www.forextv.com/Forex/Video/Video.jsp?channel=41&movieid=36267

Tam: http://www.forextv.com/Forex/Video/Video.jsp?channel=41&movieid=36233

Powell: http://www.forextv.com/Forex/Video/Video.jsp?channel=41&movieid=36208

Laidi: http://www.forextv.com/Forex/Video/Video.jsp?channel=41&movieid=36191