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Currency Currents

Currency Currents

Wed, Jun 25 2008, 16:23 GMT

Black Swan Capital

Fed Today, but Keep Your Eye on July 3rd …

Today is the big day. In a few hours everyone will be tuning in for a first-hand report on the latest Federal Open Market Committee rate decision. All the FOMC meetings seem increasingly important, but it’s those similar to today’s meeting, where officials could POTENTIALLY change policy direction, that really get the market riled up.

The last three FOMC decisions, albeit all decisions to cut rates, actually sent the dollar rallying in the trading sessions that followed. And even though a rate hike today is unlikely, this meeting has the potential to send the dollar rallying again.

It seems that the dollar could only suffer in the wake of today’s meeting, and the several days that follow, if the FOMC statement severely disappoints. (Keep in mind the market has built up its expectations for hawkishness.)

But when all the dust has settled, we think the difference maker is going to be the European Central Bank. The dollar will likely bounce all over the place when the FOMC decision is released today, but not until the ECB’s next rate decision (July 3rd) will the dollar be able to stick to a longer-term direction.

We grabbed the following chart from the European Central Bank website just to give you an idea what they’re dealing with ...
 

Economic concerns continue to be to the downside for Europe. And the ECB President, Jean-Claude Trichet, continues to reiterate that fact. But in recent comments he also reiterated the ECB’s commitment to stabilizing prices.

Let’s just say this chart, which shows prices well above their average and well above ECB comfort levels, can’t possibly leave a good feeling in Trichet’s stomach.

We’re leaning more towards a dollar-positive outcome this afternoon than dollar-negative. But even if we’re right, there’s still plenty of time for fortune’s to reverse. The big money rides on the ECB.

Regards,

Black Swan Capital

• Black Swan Capital - Currency Snapshot 6/25/2008

Published on  Wed, Jun 25 2008, 16:24 GMT

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