Slow Start To The Week!

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By Mike Conlon | April 11, 2011

This week is starting out slowly as there is little news today to warrant any excessive volatility or trend disruptions. This may be a good thing as after Friday’s major moves higher in commodities and the resulting Dollar weakness, a quick pause to re-evaluate may be exactly what this market needs.

Here’s what we do know this morning: Chinese exports came in better than expected overnight giving them a trade surplus vs. an expected trade deficit. I guess that peg to the Dollar really helped out!Over the weekend, the US government was able to come to a compromise to keep the government operatingâ€"for now. Quickly the conversation is going to switch to the debt ceiling which needs to be raised if we want to keep doubling down, or perhaps this is just another political game to be played.Japanese machine orders fell and the aftershocks keep coming as earthquake after earthquake continues to pound the island nation. A mixed reading of industrial production figures in the Euro zone has led to some minor weakness.

Later today, two noted Fed Doves (inflation deniers) Yellen and Dudley will be speaking. The only risk here is that a deviation from their noted dovish stances could belie a shift on the FOMC. This is highly doubtful.

Meanwhile, oil has “pulled back” to $112, and gold to $1470. US stocks are set to open higher, and Europe is mixed ahead data due out later this week.

But make no mistake about it; Dollar weakness is driving global markets higher, as the Dollar index has put in a 17-month low. How much lower the Dollar can go without disrupting economies abroad remains to be seen.

In the forex market:

Aussie (AUD): The Aussie is marginally lower this morning with no news to guide it higher. Commodities have pulled back a bit so the US dollar is strengthening some, but this could just be a cat-cat bounce. Consumer confidence figures due out on Wednesday highlight the extent of the news form down under.

Kiwi (NZD): The Kiwi has been moving higher very quietly as the re-building efforts from the earthquake are starting to add to the pick-up in economic activity. The Kiwi just broke its 2011 high vs. USD. (Click chart to enlarge)

Loonie (CAD): The Loonie is pulling back a little as oil is now trading at $111.50. This comes ahead of tomorrow’s BOC rate decision where the expectation is that rates will be left unchanged at 1%.

Euro (EUR): The Euro is starting the day lower as mixed industrial production figures do little to affect the Euro one way or the other. What is affecting the Euro this morning is a wee bit of US dollar strength, as oil prices retreat. The Euro fell just short of reaching 1.45 vs. USD. (Click chart to enlarge)

Pound (GBP): The Pound is mixed this morning ahead of tomorrow’s CPI report which is expected to show inflation still a problem at 4.4%. Should inflation subside in any meaningful way, then the BOE may be afforded more time to allow fiscal policy reductions to work, rather than having to do it through monetary policy. UK jobless claims are due out on Wednesday.

Dollar (USD): The Dollar appears to be doing a little “dead-cat bounce” here, as oil prices have pulled back after the risk of being short over the weekend was navigated. Fed doves will speak today but don’t expect a change of heart with regard to policy stance.

Yen (JPY): Aftershock after aftershock keeps happening in Japan which has heightened the risk that this nuclear situation could get worse. While economic fundamentals are bound to be moribund in the short-term, the long-term prospects for growth appear grounded due to the re-building that will take place.

There are many factors contributing to the global economy that have had various push-pull effects on different markets. But the one underlying theme that continues to persist is Dollar weakness.

While economic data this week won’t be as telling here in the US, both the UK and Canada have news that could be market moving. But overall, the weak US dollar trend is still intact.

However, if you are not already short the US dollar, it may be difficult to get in here, so wait for pullbacks to get a better low-risk entry. And of course keep an eye on the news to see if any other region’s fundamentals begin to look as bad as the US.

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