These two charts of currency ETFs:
show ”competitive currency” losses which began April 26, 2010. Rising concern globally over contagion from the risk of sovereign debt default, and risk aversion to investing for growth, brought a great unwinding of yen carry trade investment in stocks on April 26, 2010.
But then, as the EFSF Monetary was announced by the EU Finance Leaders, the Euro, FXE, rose from an oversold condition on June 7, 2010.
Today the Euro, FXE, traded higher at opening; but then fell lower than yesterday’s price of 123.36, to close at 122.78 down 0.50%
The asian currencies rose on China’s announcement that it de-peged its currency, the Chinese Yuan, CYB, from the US Dollar, $USD — it’s free, it’s liberated and it rose, much to the approval, I am sure of Senator Schumer and Treasury Secretary Geithner, who consider it to be undervalued; and who may oversee passage of protectionist trade legislation with sanctions and import duties if China is deemed to be a currency manipulator for the benefit of its exporters.
Robert Wenzel of EconomicPolicy Journal in article, Renminbi Ticks Up Against Dollar reports that by the close of trading today in Asia, China allowed the renminbi to advance 0.42 percent to 6.7976 per dollar. This is the highest level in nearly two years and the biggest one-day move since 2005. It remains unclear how high China will allow the renminibi to float, and it remains unclear as to the composition of the new currency basket that China has fixed the renminibi to.
The Yuan, CYB, closed up 0.6%
The Aussie, FXA, closed up 0.8%
The Kiwi, BNZ, closed up 0.5%
The Rupe,INR, closed unchanged.
The Loonie, FXC, closed lower 0.3%
The Euro, FXE, closed lower 0.5%
The US Dollar, $USD, closed up 0.4%; but has fallen parabolically lower to the side of “head and shoulders” pattern; click on chart to enlarge.
Yahoo Finance reports that the EUR/JPY closed at 112. 07 down 0.16%.
Stockcharts.com reports:FXA:FXY, the Aussie carry trade, up 1.12%. It has “reset” enabling currency traders to sell it short once again; click on chart to enlarge.
FXC:FXY, the Loonie carry trade, even 0.00%
BZF:FXY the Brazilian Real carry trade, up 0.07%
INR:FXY, the Rupe carry trade, up 0.29%
FXE:FXY, the Euro carry trade, down 0.17%.
USO:FXY, the oil carry trade, up 0.18%
GLD:FXY, the gold carry trade, down 1.62%
Stocks gapped open higher, but fell lower during the day, as the carry trades sold off from their opening burst.
XME and SLX up 1% and 2%
GRI and IYR up 1% and down 1%
EXI and XLI up 1% and break even.
SMH and QQQQ both down 1%
RZV and IWM both down 1%; click on chart of IWM which closed at 66.11, manifesting a bearish harami in a broadening top pattern; the signal here is sell, sell and sell. Institutional investors may want to consider going long with TZA, which is 300% inverse of the Russell 2000.
IPD, IYC and XRT up 2%, down 1%, down 2%.
FXI China went gaga flying back up 4% to its 200 day moving average.
INP up 2%
DNH, JSC and EWJ broke even, up 1%, up 1%.
EWZ and EEM up 1%, up 2%
GUR, FEZ, EWO, and EWP up 1%, down 1%, down 1%, down 1%
EUFN, IXG, IYF, and XLFS all broke even. FT columnist Wolfgang Münchau writes that “The problem is not the actual government debt, but the contingent debt, most of which is located in the banking sector. If there is more transparency about the banking sector, the situation would be eased”.
KBE and RWW broke even, up 1%
GDXJ fell 5%; could this be the market high in the Junior gold mining stocks if the stock market as a whole, ACWI, turns down? There has been a lot of yen carry trade and other speculative trade in these.
Equally weighted world stocks, ACWI ”gapped open higher” on a higher opening EURJPY, which fell, closing for a small gain of 0.3% . Note how it manifested a bearish harami, after failing to go through resistance at 41.44 and 41.50. Note also, the death cross in the chart of ACWI; this is not a bullish picture; click on chart to enlarge
Commodity ETFs traded as follows:
DBB up 1%
USO broke even
SLV down 2%
GLD down 2%
GAZ and UNG and GAZ, down 4% and 3% — yikes, talk about a yen carry trade unraveling!
TLT down 0.3%
IEF down 0.07%
AGG up 0.2%; it’s my perception from the chart, that aggregate debt has topped out
Robert Barr, of the Associated Press, writes that BP shares slump amid spat with partner on damages: chart of BP, APC, RIG.
EuroIntellignece reports that Jean Claude Trichet will propose an independent fiscal council in a speech to the European Parliament today; he also makes an angry outburst against greedy bankers – saying that without the ECB’s help they would all have been wiped out. Specifically, EuroIntelligence says:
It is unusual for a central bank to make a proposal about political governance, but since the eurozone’s own survival is at stake – and thus the ECB’s – it is understandable why they would want to do that. The FT reports about what Jean Claude Trichet is going to tell the European Parliament at a hearing today.
Government’s tax and spending policies would be policed by an independent agency – which is de facto a vote of no confidence in the European Commission. There would be penalties for fiscal miscreants – as the FT put it – and a system to intensify surveillance for countries losing competitive.
(Again, notice that all the effort is on the countries that are losing competitiveness, rather than those that have gained in.)
The ECB has already proposed a proper crisis management institution that would stabilise bond markets. The goal is to avoid another repeat of a situation, in which the ECB would have to buy bonds, which has brought severe criticism from Germany.
Mr Trichet will also say, according to the FT, that there should be no exit from the eurozone.
(This goes further than what the European Council is likely to settle on because of the role of an independent fiscal council. If EU leaders were to agree to set up an IFC, the recommendations would not, and could not, be binding. And further, it is hard to accept that the problem of imbalances can be reduced by focusing solely on countries that have lost competitiveness – in other words on pay cuts in those countries.)
Yahoo Finance chart of EWG, and the misfits EWP, EWI, EWO, and EWQ
Google Finance chart shows Germany traded even today; and that it has since June 7, 2010 run back up to just 10% from its year-to-date highs.
My ”take” of Mr. Trichet’s speech is that he has a vision of global governance of Europe. which presents the need for agreement of budgetary surveillance for all 27 members of the greater union and not just the 16 eurozone states, which would provide mechanisms and sanctions to correct excessive deficits and debt levels. Economic governance would provide centralized management of both wages and costs. Fiscal surveillance would be more direct and effective. For countries that experience significant losses of competitiveness, surveillance would become increasingly deep and detailed. Dedicated country mission statements would be established with compliance requirements and public peer pressure and gradual steps, to encourage compliance as part of the oversight process. In the Union, a greater sacrifice will be required of poor performers. He called on policy-makers to internalize what it means to be part of a monetary union, in words and in deeds. In other words, the chairman of the ECB, the EFSF and the EU Council are to assume hierarchical economic governance leadership. In conclusion, he called on the EU Parliament for ambitious reforms in this time of crisis.
Mr. Trichet presented his ””ambitious plans” for the future of Europe squarely where the responsibility lies, that is in the EU Parliament. The future of Europe and the world rests with them and also the currency traders who may or may not choose to move the currency and stock markets before this weekends G-20 meeting. China was very shrewd and discerning in timing the liberation and revaluation of their currency to precede that meeting which opened for trading today; it rose 0.6%.
Corey Rosenbloom in article Market Threatens the Worst of Both Worlds with a Trap provides excellent coverage of today’s trading action.
And Ambrose Evans-Pritchard relates Gold Reclaims Its Currency Status As The Global System Unravels
Elaine Meinel Supkis writes Gold Will Eventually Replace Floating Fiat Currency Trade Regime
Disclosure: I am invested in gold coins