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“They may forget what you said, but they will never forget how you made them feel.”

                             Carl W. Buechner

FX Trading – Sifting through the smiles, bad news still concerns me …
There’s a steady stream of analysts now taking their chance at calling a bottom for stock markets. I mean, why not jump on the taste of optimism that the market is serving up? If soothing-sayers are proven wrong on their upbeat expectations, and stocks break to new multi-decade lows, more than likely their predictions will be tossed down the memory hole (as Jack likes to say.)

Of course, there’s a fair share of pessimistic forecasters still issuing warnings; but they’re not getting quite as much press of late because a lot of people are growing somewhat tired of all the dour predictions.

Regardless, that’s why I’m here … to keep the economy-half-empty attitude alive and kicking. Ok, maybe it’s because drawing on the negatives does more to support my market view; regardless, it’s hard to overlook some key data points that factor in heavily to potential recovery or further failings.

  • Old news, from yesterday, but Japan recently announced another big-time set-back at the hands of global demand. Thanks to exports cratering in February, Japan’s current account surplus narrowed markedly.
  • In Germany, where demand is also a vital piece of their economy and where such measures have also fallen off a cliff, industrial production tanked for a sixth straight month in February. Output fell back as the brakes continued to be applied to manufacturing orders.
  • Australia, the land that’s getting the least bad press among developed nations, is in no way isolated from the pessimism. A depressing employment report in Australia is the most recent downer – the biggest jump in unemployment in roughly 18 years. Regardless of the country’s relatively more attractive financial position, they’re remain very dependent on the big boys (China, US) for prosperity.
  • Canada is no different: they’re latest unemployment report this morning notched the worst rate in seven years. Again, without the global economy cranking, Canada’s dependence on global growth and demand will shadow any openings where light might shine through.
  • As was released yesterday, the Federal Reserve noted in their most recent FOMC minutes that growth won’t be recovering this year. Their brief comments on consumer spending are of importance (again because it fits my story) as the pull back in consumer expenditures posses significant obstacles to getting US and global growth back on track.

Can stock markets move onward and upward without a simultaneous step-up in global growth measures?

Sure. Stocks have been known to be a leading indicator. It’s entirely possible that the bottom is in. Stocks could weather the inevitable frustrations that corporations and companies will still undergo before “green shoots” and “signs of recovery.” But is it probable?  We wonder!  For now, the trend is your friend.  And if it is, the dollar trend may be down for a while.

What interesting to junkies like us is the fact the US $ index and the S&P 500 are operating, from different directions, off the same Fibonacci retracement numbers, as you can see in the daily comparison chart below:

There are far too many negatives still for me to start breaking out the happy-times-are-here-again champagne. And there are far too many issues (of the major global imbalances variety) that go unresolved and relatively discounted. I remain cautious; we’re sticking to our global macro themes, sympathetic of the US dollar and downbeat on the potential for global economic recovery. We continue to monitor the near-term and long-term risks to this view.

That’s it for us this week. We’ll be taking some time off tomorrow to spend Good Friday and the Easter weekend with our families. We’ll be back at you with Currency Currents on Monday.