Phillip  Bartling

If the US Dollar were a person with a sense of humor, it might quip along the lines of Mark Twain that ‘rumors of my death are premature and have been exaggerated’.

The dollar is looking set to flex its muscles.

We are seeing massive anti-inflationary pressure across the board in global currencies. We see it in low interest rates, in the fact that wages are not keeping pace with employment. There is a sense that the Federal Reserve has successfully set the stage for the end of Quantitative Easing. Some people are saying now that it could come almost anytime, maybe as early as January or even next month, and nobody is panicking about those statements too much.

That’s all making the US Dollar more attractive.

Most people know to expect interest rates on bonds to rise in the near term. Dollar based equities are preferable to debt instruments here.

I expect the ten-year Treasury bond to be yielding well over 3% soon.With the dollar holding firm and end of the year profit taking soon to take place, the equities market uptrend is expected to remain intact, but a little flat and choppy at these levels. If the bond market gets too jittery, or if the prices of commodities are too weak, that will also put pressure on stocks.

In the Forex world, you have to sleep with one eye open. With one eye, you watch the currency pair you are trading, with the other, the white elephant in the room—China. Remember, amazingly, the Chinese Yuan does not float or trade against other currencies. It’s pegged. But they are so big and influential, you have to watch them, bad news from China can crush the Asia/Pacific region currencies.

Luckily we have The Federal Reserve to keep help us keep an eye on China.

Friday, Federal Reserve Bank of San Francisco President John Williams gave a speech where he revealed some of their latest Chinese economic analysis.

“Though a real-estate bubble is a risk, there is also concern that economic growth could weaken too much and too quickly," Mr. Williams said. "With the rest of the global economy lacking the steam to pull China's economy along, it must find some domestic engine for growth." He said going on to point out some of the difficulties they will face doing that with a “repressed” and” tightly control financial system”.

(Reported by Michael S. Derby and distributed by Dow Jones & Company, Inc.)

Putting it all together for the US Dollar vs. the Japanese Yen…


Phillip Bartling

Forex Investment Management LLC is run by Phillip Bartling.