Merkel Sends Euro Higher

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The interruption of last week’s steady negative news stream from the US saw the dollar consolidate its recent losses.  German Chancellor Merkel’s comments ended this brief phase and sent the euro higher.  Since the euro broke above $1.1100-$1.1130,  we have been warning of potential toward the US election high of $1.13.  

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Yen and Aussie Bears Push Forward, while Sterling Bears Continue to Run for Cover

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In the Commitment of Traders reporting week ending May 16, speculators in the futures market made three significant adjustments in the currency futures.  

 

First, they continued to accumulate a large short yen position.  The bears added 23k contracts to their gross short yen position to lift it to 102k contracts.  This is the highest in two months and the largest build in five months.  The net short yen position swelled to 60k contracts from 36.3k.

 

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Greenback Stays on Defense

Blog icons - FX Outlook dollarThe US dollar was hammered last week, and there is little from a technical or fundamental perspective to suggest near-term movement in the direction of our longer-term forecasts.  The escalation of the investigation into Russia’s involvement in the recent US election threatens to take resources, time, and attention away from the economic agenda, which had already begun meeting some skepticism.  At the same time that expectations are mounting for a shift in ECB’s stance in a few weeks, and Japan’s economy surprised on the upside in Q1.  

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Shale’s Lesson for Creditors and Debtors

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The heavy hand of past borrowings continues to hang over us.  China’s explosion of debt is worrisome.  The bad loans being carried by European banks may be a factor restraining the willingness to lend.   The IMF and the EU are still at odds over the sustainability of Greek debt. Meanwhile, data released yesterday showed that household debt in the US surpassed the pre-crisis peak in Q1 (to ~$12.7 trillion). Arrears sharply lower than before, with the notable exception of student loans.  Also, there has been some recent slippage on credit cards and vehicle loans.

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Markozy, Merde, and now Meron

new franceGerman Chancellor Merkel is one of the outstanding leaders of our era. She leads the world’s fourth largest economy, which is still the locomotive for Europe.   Recent state elections and polls leave little doubt that barring some kind of shock; she will be re-elected as Chancellor in September.  It will be her fourth term.  

 

Macron is the youngest president in modern French history and has not held a public office until now.  He is his the fourth French president during Merkel’s tenure.  When Macron was born (1977), Angela Kasner married a physics student, Ulrich Merkel.  They were divorced in 1982 as Macron was getting ready to go to attend school.

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The Politics and Economics of the US-China Agreement

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Last week the US and China announced some details of a tentative trade agreement.  Many observers are scratching their heads.  Commerce Secretary Ross says the goal is to reduce the roughly $360 bln bilateral deficit.  There is little in the agreement that will achieve this.  

The beef and other agricultural goods that the US can begin selling China are not on favored terms, and US producers will be competing, for example, with Brazil.  Moreover, the amounts are too small to produce much of the trade imbalance.  The US has agreed to be more open to cooked poultry from China, but this too is not on favored terms, and will health concerns may limit US demand.  

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