US Dollar rate not the best again today as Madoff is sentenced to 150 years

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The calendar has some juicy stuff on it, holiday mentality or not. Today Bernie Madoff is sentenced to 150 years. His lawyer wants 12 years of jail time. The law would allow 150 years. It’s up to the judge. So far the liquidation manager has found only $1.3 billion of the $13.2 billion stolen and the rest will have to come from investor insurance and "clawbacks," or taking money from those smart enough to have gotten something back from Bernie. This seems inherently unfair, doesn't it? We were a bit shocked when the other Bernie, Ebbers, got 25 years, but it would set a good tone for Madoff to get a really high number, too. We can't believe that long jail sentences don’t serve as some kind of deterrent, and financial criminals are particularly dense.

Tomorrow we get Case-Shiller house prices, but for April - a real lag. The payrolls report on Thursday will be preceded, as usual, by the ADP Macro estimate on Wednesday. It's hard to see how the report can be good. High school and college kids will swell the ranks of the unemployed, with their usual service sector jobs not getting created this year.

Stock market guru Sandi Lynne (www.wallstreetinadvance.com) says "Bear in mind, as this week draws to a close, markets will be a mere two weeks away from earnings season. As expectations rose with stock prices, the opportunity for disappointment rose, as well, especially since the reality of business conditions may not fit the rose colored glasses of the anticipators who celebrated depression being taken off the table Worry, especially, about the growing number of people who’ve exhausted their unemployment benefits. The more people who fall off the continuing claims list, the more risk there is that another group of consumers will drop off the grid and stop paying their mortgage, credit card bills, and even their phone and electricity bills."

The WSJ reports today that Michigan, for one, is getting ready for a surge in applications for welfare once unemployment benefits run out. Michigan has 680,000 on the unemployment rolls already, which is about 10% of the national number. Here’s a shocker—the welfare check for a family of three is $492/month.

The End-is-Nigh club would have it that the Fed's enormous balance sheet expansion will inevitably cause inflation and foreign exchange traders will sell dollars buy euros, and that's the only way the US can repay all that debt. We can think of 18 reasons why this ain’t necessarily so, and one of them is that according to the University of Michigan survey, one-year inflation expectations are 3.1% and 5-year inflation expectations are lower, at 3.0%. This is not to say the great unwashed public is wiser than hordes of PhD-card-carrying economists, but it is to say that inflation fear is premature. You don’t get a bond market rally when inflation fear is rampant. There are multiple reasons for the June rally, but one of them is pushing back against inflation fear.

On the whole, we can imagine plenty of reasons for the us dollar rate to survive in the current environment, not least of which is doubt and skepticism about how stable the European financial sector really is and how much growth the continent can get, especially compared to the US with multiple green shoots. But look at a big-picture chart of the euro exchange rate - it’s on an uptrend, and the current phase is just that - a corrective, consolidative phase. On the daily chart, the linear regression drawn off the April euro rates low leads to a level over 1.5000 before end-July. With so much confusion and conflict over the fundamentals, the chart may rule.

Pounds to US Dollars = 1.6550
Pounds to Euros = 1.1768
Euro to Pounds = 0.8495
Pounds to Australian Dollars = 2.0550

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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