The dollar put on another weak showing on Thursday as it struggles to maintain critical support at the 200-day moving average. If it were not for the Bank of Japan’s intervention to weaken the yen the previous day, it seems the dollar would be well on its way down through a technical breakdown.
*Chart created using TeleChart:
I read a fascinating article on Bloomberg titled “Bernanke Shadow of Easing Limits BOJ Success With Yen Weakness” that provided a stark reminder of the de facto competitive devaluation occurring amongst the world’s struggling industrial economies. Next week’s Federal Reserve meeting adds more potential drama to the currency landscape. Any statement reconfirming the Fed’s concern about a fragile recovery could further weaken the dollar in anticipation of (or in reaction to) further quantitative easing.
I highly recommend reading the article, but here are some other notable highlights:
- Euro-region finance ministers are “insisting” Japanese authorities “step back from unilateral interventions.”
- Japanese Finance Minister Yoshihiko Noda defended the intervention: “…with deflation, our economy is in a severe situation and it’s undesirable that the strong yen be prolonged…I think it’s important to explain that persistently to other nations.”
- Japanese exporters remain profitable as long as the yen is no stronger than 92.90 per U.S. dollar.
- University of California at Berkeley economist Barry Eichengreen claimed: “The economies of both Japan and the U.S. would benefit from another round of quantitative easing.” He went on to say that Japan can print more currency at no cost and with no negative side effect, particularly to offset any quantitative easing from the U.S.
- Barclays analysis suggests that the yen and franc tend to do well before and after Fed decisions to do quantitative easing while emerging market currencies under-perform.
As the pressure is on to push currencies down to somewhere just north of zero, gold is hitting all-time (nominal) highs again. I am not surprised, and I am eager to do another update on my sentiment analysis of gold. In early July, it suggested that skepticism regarding gold remained high.
Be careful out there!
Full disclosure: long USD/JPY, long GBP/JPY, short EUR/JPY, long GG