Will Anticipation Of Banker Meetings Dominate Trade For The Next Few Weeks?

Includes: FXE, UDN, UUP
by: Ralph Shell

Toward the end of summer, the Federal Reserve District of Kansas City hosts a central bankers meeting at beautiful Jackson Hole Wyoming. It was at this venue that Fed Chairman Bernanke announced in 2010 that he was about to embark on QE 2. The effect of this stimulant was short lived. Now the recent FOMC meeting notes suggest the Fed is searching for new tools to give the economy a boost.

The US economic news is mixed. Unlike Europe, the US has not slipped back into a recession, but the US GDP Annualized (Q/Q) to be released this Wednesday is anticipated to be only 1.7%. The market thinks Bernanke will be prompted to introduce plans for a new stimulus. I am doubtful, but we will see. Big bankers do like to make big headlines.

Bernanke will speak Friday, but will be followed Saturday by another Central Banker who seems to enjoy the spotlight, ECB President Mario Draghi. While Bernanke has hinted the Fed is considering a new stimulus might be employed, the ECB President has already announced that decisive action is going to be taken to address the European debt crises.

For the Draghi plan however, there are no details. So far there are loud cheers for the euro and its future but no specifics. Perhaps Draghi will use the global venue for a surprise.

Earlier this week, the market anticipated the Greeks would get some relief from the austerity program that has resulted in a 20% contraction of their economy. This was squelched when, according to MarketWatch, German Finance Minister Schaeuble told radio station SWR, "More time is not a solution for the problems."

Following the Central Bankers Jackson Hole festive, it is back to work in Europe after the August holiday. An article by Cyrus Sanati, "Everything you need to know about where things stand in Europe," is an excellent read. There were these interesting comments about the German austerity solution to the Spanish and Italian debt:

"But belt tightening won't work with the level of debt both nations have on their books. Spain looked like it was better off than most nations but the central government in Madrid has had to take on the liabilities of Spain's troubled regions and its insolvent banks. Italy has made great strides in reforming its antiquated and dysfunctional tax and spend policy under the leadership of Mario Monti, but it has hardly moved the needle as the nation drowns in $2 trillion in debt. Both nations would need the equivalent of a huge economic boom in order to raise enough revenue to cover their debts. Unfortunately, that isn't going to happen for either country given their double-digit unemployment numbers."

This week's EURUSD rally has been short covering, optimism of a European solution, and hope that Bernanke is going to increase the money supply, thereby debasing the USD. We are hopeful the rally continues next week which will give us a better spot to short the euro.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.