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EUR/USD Twin Deficits Grow but Who Cares

|Includes: CurrencyShares British Pound Sterling Trust ETF (FXB), FXC, FXE, FXF, FXY, UDN

It seems like everybody is posturing.  Yesterday Treasury Secretary Geithner, at a meeting of the Asia Pacific Economic Cooperation Group in Singapore, said it is very important that the US has a strong dollar.  In China PBOC Governor Zhou, said that they might be willing to consider "changes in the capital flows and trends of major currencies" which has led some pundits to argue this is evidence the Chinese are closer to an upward valuation of their currency. Ironic is it not, that these comments have occurred on the eve of President Obama's visit.  Not to be outdone, the current administration, as reported in a Politico article this morning, said that the cap and trade bill may be jettisoned so more attention can be focused on the budgetary deficit.  All of this is music (appeasement?) to the ears of the Chinese who are concerned about the value of their massive inventory of dollars, and have little regard for causes of the environmental greenies.  Words still mean something, but can anyone believe these people?

This morning we had reports from Europe on the preliminary GDP.   The numbers showed modest growth with the aggregate European GDP up 0.4% versus an expected 0.6% and a minus 0.2% in the previous period.  The US trade balance came in at a negative 36.5B, in excess of the expected 31.8B  The was the largest increase in the trade deficit since 1999, according to Bloomberg.  Since the consumer is not active, can this be inventory accumulation ahead of  further dollar depreciation? The Univ. of Michigan survey of consumer sentiment showed consumers less optimistic, 66.0 versus and expected 71.1 and 70.6 in the previous period.  An afternoon report yesterday reported the October US Treasury deficit at 176.4B, the 5th worst month in history.

It is always difficult to know when the market has already discounted information.  Today's reports, that the US twin deficits are going the wrong way, has had little impact so maybe the news is in the market..   We are currently trading at 1.4880.


This week's failure of the market to continue upward above the 1.50 level has dispelled some of the bullish enthusiasm.  The 4H RSI is a warning that the pair may be a little oversold.  With bearish dollar news, a more vigorous bounce seems in order.  The market's subdued response is probably because it is Friday.  We will stand aside to objectively observe weekend developments.