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Something's Brewing In The Markets


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1.4999 high vs the $ today. Lot of resistance at over 1.50. Currently 1.4927 which is a very tight range compared with recent weeks. Market looking for direction. Can't see Sterling rising much more before a corrective dip.

Budget high. I reckon the moment the economy shows a slowdown the pound gets it hard.

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Guest sillybear2

Ben Bernanke needs fresh monetary blitz as US recovery falters

Federal Reserve chairman Ben Bernanke is waging an epochal battle behind the scenes for control of US monetary policy, struggling to overcome resistance from regional Fed hawks for further possible stimulus to prevent a deflationary spiral.

Fed watchers say Mr Bernanke and his close allies at the Board in Washington are worried by signs that the US recovery is running out of steam. The ECRI leading indicator published by the Economic Cycle Research Institute has collapsed to a 45-week low of -5.7 in the most precipitous slide for half a century. Such a reading typically portends contraction within three months or so.

Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed's balance sheet from $2.4 trillion (£1.6 trillion) to uncharted levels of $5 trillion. But they are certain to face intense scepticism from regional hardliners. The dispute has echoes of the early 1930s when the Chicago Fed stymied rescue efforts.

"We're heading towards a double-dip recession," said Chris Whalen, a former Fed official and now head of Institutional Risk Analystics. "The party is over from fiscal support. These hard-money men are fighting the last war: they don't recognise that money velocity has slowed and we are going into deflation. The only default option left is to crank up the printing presses again."


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This fits the bill.


It was a terrible week in Euro land. Greek bond spreads broke 10%. A restructuring can’t be too far away. They are performing a bank stress test that appears to be a joke. The results will exclude sovereign risk. Exactly where the risk lies. With this as a backdrop the Euro should have been slammed. It would have been in the market we had just a month ago. But not this week. Some charts of the larger reserve currencies versus the dollar.





The dollar has backed up in a significant way since the first week in June. Some would say that the Buck is just suffering some indigestion after a big move up in a short period of time. A very good case can be made for the Euro to be 10-15% lower than it is today purely on fundamentals. But that is not what the tape is telling us.

Currencies have two roles. They are a medium of exchange for settlement of cross boarder trade and finance. All the reserve currencies do a good job in that function. The other role of a currency is as a store of wealth. It is not clear to me if any of the major currencies are doing well in that capacity.

In the long run things like trade imbalances and current account deficits are determinants in setting exchange rates. In the course of any given month those influences have almost nothing to do with how rates are set. In the short term it is all about sentiment.

I see the US losing the sentiment battle. With all the problems in the UK and the EU at least the governments are attempting to address the fundamental problem of fiscal imbalances. Even Germany is taking up the issue. This is probably going to prove to be the kiss of death for Greece. But a failure of Greece is not by itself the kiss of death for the Euro.

This weekend’s G20 meeting may give us some clues on the sentiment issue. We are going to see some battle lines drawn. Both Obama and Geithner will be pushing for a growth package. It is likely that some of the other countries are going to give the US a thumbs down on that. America is going to be the only major country left that is continuing down the path of fiscal insanity.

The final communiqué will have some nice talk about global coordination and a big “thank you” to China for stepping up to the plate and adjusting its FX policy. Behind the scenes it will be less friendly. A number of countries will attempt to chastise the US for its profligate ways. No one at the meeting will really be satisfied that China adjusted its FX rate against the dollar by a measly ½% as a ticket to the show.

Should the US be held up as “the way not to do it” or if we getting some snotty comments from a finance minister or two then we will see this in the FX markets on Sunday night. The one thing that no one is thinking about in the summer of 2010 is a dollar problem. That is probably the best reason why one might pop up.

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Or if Armourdinnerjacket follows through with his threat to annihilate Israel?

I doubt any nation would risk an assault against a nuke country just in case they loosed one before being taken down themselves. The only nation threatening to use Nukes is Iran if their rhetoric about annihilation of Israel is taken literally. North Korea is more bluff than anything and they know the Chinese will punish them if they do anything that would affect Chinese business. Dear Leader will be taken out within 24 hours in such a scenario and he was probably told as much when he "visited" Beijing recently.

I think the MSM have rather mislead you there RB. Ahmadinejad's remarks were more accurately translated as

"[Just as] the Soviet Union disappeared, the Zionist regime will also vanish and humanity will be liberated."

Why would Iran attack a country (Israel) that could turn Iran into glowing glass in seconds? Israel has nukes, secretly until Mordechai Vanunu blew the whistle, in defiance of the nuclear non-proliferation treaty. According to the IAEA, Iran has complied with the terms of the NPT.

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I'm sure if it is anything bad the government will step in with a massive injection of cash to help the 'free' market along,

even if ordinary working people will have the privilege of paying for it for the next 50 years.

Just as long as the chaps from the club don't lose their bonuses, what.

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