BIGCAPITAL's Blog

February 23, 2011

Dollar May Appreciate to 1.0067 Swiss Francs

Dollar May Appreciate to 1.0067 Swiss Francs: Technical Analysis

The dollar may reverse last week’s decline and rally 6 percent to its December high against the Swiss franc, Commerzbank AG said, citing technical indicators.

“Longer-term, we target 1.0067” Swiss francs per dollar, Karen Jones, head of fixed-income, commodity and currency technical analysis at Commerzbank in London, wrote in a report today. The exchange rate reached that level on Dec. 1.

The dollar strengthened 0.3 percent to 94.78 Swiss centimes at 12:30 p.m. today in London. The greenback slumped almost 3 percent against the franc last week and sank to 94.25 earlier today, the weakest level since Feb. 3, Bloomberg data show.

“We would allow the slide to continue to 0.9425, from where we would favor recovery,” Jones wrote. That’s the 78.6 percent Fibonacci retracement of the rally seen in February, Jones wrote.

The dollar may test resistance at around 97.74 centimes, she said. Those levels represent the 61.8 percent Fibonacci retracement of the move down from December and the high from Jan. 11, according to data compiled by Bloomberg.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. Resistance and support levels are areas on a chart where technical analysts anticipate orders to sell or buy, respectively, a currency and its related instruments

Fed’s Fisher Says More Stimulus Unnecessary

Fed’s Fisher Says More Stimulus Unnecessary

(RTTNews) – A top Federal Reserve official declared on Thursday that we would not back more monetary easing when the Fed’s $600 billion quantitative easing program winds to a close.

Richard Fisher, President of the Federal Reserve Bank of Dallas, was quoted as saying that he could not foresee any circumstances that would warrant more stimulus and suggested that the central bank should turn its attention to unwinding support.

Fisher’s comments contrast with those made by the Chicago Fed President Charles Evans, who backed the Fed’s extremely loose monetary policy and assured that it had the tools to tighten quickly if needed should inflation rise faster than expected

February 2, 2011

Bernanke: The Dollar System Is Flawed

Filed under: Uncategorized — bigcapital @ 9:18 am
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Bernanke: The Dollar System Is Flawed

Federal Reserve Chairman Ben Bernanke’s speech in Frankfurt may be one of the most important and underreported events since America abandoned the gold standard. In it, he said the dollar standard was flawed and that America’s trade deficit was imperiling America.

 “[I]t would be desirable for the global community, over time, to devise [a new] international monetary system,” he said.

 Never before has a Fed chairman made such an admission. Never before has one ever disparaged his own currency in such a way.

“The speech was a radical departure from the status quo and a major signal for a looming policy change. It means that trade war is virtually guaranteed and the dollar will soon be devalued. Dramatic global economic upheaval is on the way. “

 On November 19, Ben Bernanke told a room full of bankers in Frankfurt, Germany, that the world’s sense of common purpose had waned. Tensions among nations over economic policies are intensifying, he said. It threatens the world’s ability to find a solution.

 U.S. unemployment rates are high, he told the gathering, and given the slow pace of economic growth, likely to remain so. Approximately 8.5 million jobs have been lost so far, and when you take into account population growth, the size of the employment gap is even larger, he said.

 Unemployment may get even worse before it gets better.

 “In sum, on its current economic trajectory the United Sates runs the risk of seeing millions of workers unemployed or underemployed for many years,” lamented Bernanke. “As a society, we should find that outcome unacceptable.”

 In an effort to win European allies, America’s most powerful banker then went on the attack—blaming China for causing much of the economic and trade imbalances destabilizing the current dollar-centric economic order and threatening the world’s economy.

 China is manipulating the market to keep its currency undervalued, he charged. This has led to imbalances.

 Each month China sells tens of billions of dollars more worth of goods and services to America than it purchases in return. Many American economists claim this is because of China’s undervalued currency, which makes Chinese goods less expensive in America and American goods more expensive in China.

 Coupled with China’s low-wage, low-taxation, low-regulatory, non-union environment, resulting in the relocation of millions of American jobs overseas, China has received a huge economic boost at America’s expense.

 This is a primary reason nations like China have fully recovered from the recession while America is still mired in it, noted Bernanke. America can no longer afford to let China drain the U.S. economy.

But what to do about it?

 “As currently constituted, the international monetary system has a structural flaw,” said America’s chief banker. The dollar system is broken. “It lacks a mechanism, market based or otherwise, to induce needed adjustments by surplus countries, which can result in persistent imbalances” (emphasis mine throughout).

“In the meantime, without such a system in place, the countries of the world must recognize their collective responsibility for bringing about the rebalancing required to preserve global economic stability and prosperity.”

 Thus Bernanke told his German audience to prepare for “market-based or otherwise” unorthodox—even radical—action by the Fed to try and force China to revalue its currency and rebalance the global economy.

 The “flaw” has been declared. But what is Bernanke going to do?

 “Bernanke is alerting the world to the most important shift in U.S. trade policy in more than a generation,” writes economic analyst and author Richard Duncan. “The world has been put on notice that the United States will take steps to correct this defect and the destabilizing trade imbalances it permits.”

 “If the flaw cannot be corrected through international coordination, then unilateral actions by the United Sates should be anticipated,” Duncan warns.

 And if history is a guide, that means tariffs and trade duties.

 The first major shots of trade war may be about to be fired—and the Fed has just given its blessing. If you look back on the 1930s and that disastrous time period, protectionism is lethally contagious and predictable. Global trade and commerce will contract. Import prices will rise. Unemployment will skyrocket. And that is just for starters.

 During the Great Depression, America was not burdened under record debt. The economy entered that age of trade warfare from a position of strength, and still the economy got ruthlessly battered.

 A trade-war-induced depression today would potentially be far worse—and not just because the United States has become the greatest debtor nation in all history, but because this time, the credibility of America’s government, its central bank and its currency, are all now in question.

 Besides tariffs, Mr. Bernanke’s declaration that the international monetary system is broken also means the Fed will engage in as much “quantitative easing” as necessary to compensate for what he sees as its “structural flaws.”

 During the G-20 meeting in South Korea two weeks ago, President Obama and Treasury Secretary Timothy Geithner were forced to defend the Federal Reserve’s decision to print dollars to finance government spending and depreciate the value of the dollar.

 Foreign nations saw it as a way for America to renege on its debts.

 Bernanke’s Frankfurt defense of the Fed’s “quantitative easing” will do little to reverse that sentiment. “Fully aware of the important role that the dollar plays in the international monetary and financial system, the [Fed] believes that the best way to continue to deliver the strong economic fundamentals that underpin the value of the dollar, as well as to support the global recovery, is through policies that lead to a resumption of robust growth in the context of price stability in the United States,” Bernanke said.

 In order for America to support the value of the dollar, it will devalue it, said Bernanke. The incongruity is palpable—and surely wasn’t lost on America’s bond holders. Every time the Federal Reserve hits the “print” button, creating money out of thin air, it devalues the dollars in existence. America’s lenders (of which the Chinese are the largest) have been put on notice that they will be paid back in depreciated dollars.

 Be prepared for more quantitative easing—or, as it has become known overseas, quantitative fleecing.

 And be prepared for the Federal Reserve’s antics to succeed all too well.

 Foreign nations, and America’s foreign creditors, grow more dissatisfied with the dollar as the world’s reserve currency every day. The move to adopt a new reserve currency system is gaining momentum. When this happens, the Federal Reserve will get a whole lot more international cooperation in meeting its goals than it could have ever wanted.

 The Fed won’t be trying to devalue the dollar anymore—it will be doing everything it can to prop it up.

 Unfortunately, with faith in the dollar broken, the government unable to borrow money and a global trade war ravaging the U.S. economy, America will pine for the structurally “flawed” but comparatively good old days.

 “The speech was a radical departure from the status quo and a major signal for a looming policy change. It means that trade war is virtually guaranteed and the dollar will soon be devalued. Dramatic global economic upheaval is on the way.”

– MARKET TALK –

December 22, 2010

Moody’s Sees No Europe Defaults

 

MOODY’s SEES NO EUROPE DEFAULTS

LONDON –The euro zone “retains significant financial strength” and has the “resources, incentives, and political cohesion” needed to contain the sovereign debt crisis, Moody’s Investors Service Inc. said Tuesday.

“We believe that policymakers have sufficient resources and will use them as necessary to restore financial stability,” the ratings agency said in a report.

Moody’s said that all its euro-zone sovereign ratings with the exception of Greece are investment grade, reflecting its view that “the risk of a euro-zone sovereign default is very small.”

Beginning late October, euro zone sovereign bond markets have experienced a second wave of volatility this year, on worries about the health of sovereign borrowers and about proposals for a post-2013 crisis resolution mechanism that could penalize private lenders.

This prompted the European Central Bank to step up purchases of bonds issued by peripheral euro-zone members under its Securities Market Program.

Germany has resisted some ideas floated to deal with the crisis, such as increasing the size of European Financial Stability Facility, or issuing common euro-zone bonds.

Moody’s Investors Service said it doesn’t foresee defaults or maturity extensions on euro-area debt because the region will likely backstop weaker members, and reiterated that Portugal will likely stay investment-grade.

“Moody’s base-case scenario remains that over the medium term, no euro-zone country will suffer a payment default or otherwise impose losses on private-sector lenders through maturity extensions or other forms of distressed exchange,” the company said in a report today. “The collective willingness of the euro zone to support weaker members through the provision of liquidity will remain an important element of investor protection.”

 Its euro-zone sovereign ratings “reflect a range of factors including high intrinsic economic and financial strength and ready access to financial resources,” including those made available by other euro-zone members, Moody’s said.

FED EXTENDS DOLLAR LOAN PROGRAM WITH FOREIGN BANKS

WASHINGTON — The Federal Reserve on Tuesday extended a program set up during the European debt crisis to make it easier for foreign central banks to get access to U.S. currency to distribute to commercial lenders.

The Federal Open Market Committee said it’s extending, through Aug. 1, its U.S. dollar liquidity swap arrangements with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan and the Swiss National Bank.

The swap arrangements, established in May, had been authorized through January.

Back in May, money markets were rattled by the strains in Greece, which subsequently received 110 billion euros of assistance through the International Monetary Fund and euro-zone nations. Since then, a similar package was arranged for Ireland, and there are worries that Spain and Portugal could need them as well.

The swap lines with the European Central Bank, the Bank of England, the Swiss National Bank and the the Bank of Japan will enable the central banks to conduct tenders of U.S. dollars in their local markets at fixed local rates for full allotment, similar to arrangements that had been in place previously, according to the Fed.

As the world’s reserve currency, the dollar is highly sought after outside the United States to settle trades — in commodity markets, for example.

 They are designed to improve liquidity conditions in global money markets and to minimize the risk that strains abroad could spread to U.S. markets, the Fed said.

“It is a bond-bullish recognition that back-up liquidity facilities are still warranted in the current environment,” said analysts at CRT Capital.

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