Will ComDols Play Catch-Up?

Key News

  • ST. GALLEN, Switzerland, March 23 (Reuters) – The Swiss National Bank will keep fighting an excessive rise of the franc against the euro decisively to avoid deflation risks resurfacing, its chairman said, adding the economy’s robust performance proved the policy’s success.
  • BEIJING, March 23 (Reuters) – China will probably run a trade deficit of more than $8 billion in March, state media said on Tuesday, citing Premier Wen Jiabao.
  • It would be China’s first monthly deficit since April 2004, but is expected to be a one-time blip rather than the start of a new trend for the world’s largest goods-exporting nation.

    Nevertheless, many in the market think that Beijing will want to see several consecutive months of strong export growth before allowing the yuan to rise, so a deficit in March could put appreciation on hold for a while longer.

Quotable

“Knowledge, without common sense, says Lee, is folly; without method, it is waste; without kindness, it is fanaticism; without religion, it is death. But with common sense, it is wisdom with method, it is power; with clarity, it is beneficence; with religion, it is virtue, and life, and peace.”

                           Austin Farrar

FX Trading – Will ComDols Play Catch-Up?

If you read us consistently, you know our views on the euro and where it’s headed.

And if you don’t know, you can sign up for our long-term currency investment newsletter and receive our latest FREE report:

Key Reasons Why the Euro is Heading to Par or Beyond against the US Dollar.

We just finalized it yesterday, and it’s a quick read, packed with the latest details and graphs on what’s tearing apart the Eurozone countries and will ultimately be tugging hard on the euro’s ankles for many months to come. (See David’s note at the end for more details …)

What I ask today is: will the euro’s weakness, if it plays out according to plan, incite a run against the commodity dollars that’ve outperformed the euro and European currency by a long-shot (at least over the last two or three months)?

EURUSD Daily

A close at current levels would be the lowest since last May. This very much looks like the euro’s brief correction has come to an end; a break of this support would confirm another streak lower before this move needs a real breather.

The commodity dollars, though, gained back far more ground in the last two months. Not only do they have a good ways lower before they encounter similar support levels, but they’re not nearly as far off their high marks. The Canadian dollar actually made a new high just this month!

What’s the difference maker?

Besides the isolated problems in the Eurozone, risk appetite for US stocks has been unyielding. The S&P 500 turned back higher at the beginning of February and has barely stopped to look back, shooting to new highs and reaching levels not seen since September/October 2008.

While it is holding up, crude oil has not made nearly the same strides as the S&P; ditto for gold and copper.

The outperformance of the comdols seems to hinge on an environment where stocks just won’t roll over. But if these comdols don’t soon test their highs, they could be primed to roll over with any scare in the stock market, short- or medium-term.