Jack the Pipper

The volatility has been humongous in currencies, you might have noticed. The huge run in the euro recently seems to have a lot of Johnny Come Lately dollar bulls changing their tunes, and now suggesting the dollar move is done.

Sometimes we are a bit absurd in this morning missive in an attempt to make a point. Looking back at a recent issue, from the 2nd of December, titled “Can you say 1% Treasury Bond Yield?” we noticed the 30-year bond futures price has risen a bit since then; yields have fallen. Yes, yields have plunged faster than expected–by us, and I imagine by many others.

You’re probably kicking yourself for holding on to those hryvnia for a couple days too many.

The dollar was blasted yesterday by Ben’s Quantitative Easing cannons. It’s game over for the buck, right? Well, maybe…

Interest rate decision out of the FOMC today – Mr. Ben Bernanke and his busy policy-makers announce their latest decision on interest rates this afternoon in the US. Will Ben schmooze the media like Trichet? Doubtful. Estimates say rates will drop another 50 basis points, down to 0.50% from 1%.

We don’t think so–at least over the longer term. But no matter what we think near- or long-term, the market likes euro compared to the other players. The euro has bounced strongly against the US dollar. Also, you can see euro’s relative strength in the Euro – British pound cross (at an all-time high) and the Euro – Swiss franc cross (wasn’t Swiss supposed to be the safe haven)?

We’ve told our story as to why the US dollar has possibly entered a multi-year bull market. And depending on where else you dig for investment advice, you may have also heard why the US dollar has not entered such a bull market … why this is only a correction in the major long-term downtrend.

Ouch! Another seeming dollar correction is off the rails so far this morning, as it is sharply higher against all comers (yen the exception). Watching the dollar move sideways since November 21st is like watching an episode of the Twilight Zone–all kinds of game changing global macro events everyday and the world’s major currency just ranges. Let’s call it the “chop zone,” because that is what it can do to one’s short-term trading account–chop it up into small little pieces:

If we could only forecast the stock market, then we’d be able to forecast the dollar–it seems. But we can forecast either of them–we can only make probability bets on both. And those probabilities are all in our head–guesswork at best there too.

Well, the trend is certainly there. Central banks are cutting interest rates in a big way. The first two key news headlines above speak to that point. And of course, the Bank of England just announced a 100-basis point rate cut this morning. The European Central Bank cut 75 basis points.