Has The Overbought Dollar Correction Begun

A Pfennig For Your Thoughts
 
August 23, 2022
 
* currencies & metals rally on Wednesday
* The Housing Bubble has found a pin… 
 
Good day… And a Tub Thumpin’ Thursday to one and all! Yet another Chamber of Commerce Day in the MidWest yesterday. We haven’t experienced a “normal August heat day” in over two weeks! And this modest temperature is supposed to last through Labor Day! My beloved Cardinals couldn’t find their bats again last night. UGH! And our best hitter in the lineup last night, got tossed by a smirking, smug didn’t ask for help on the call, umpire… Other than that, it was a great day and evening for yours truly yesterday, so I had that going for me! I have a sneaky feeling that today’s letter will be short-n-sweet, as I was reading last night and early this morning, and not much is being talked about right now… I guess we’ll have to wait for the Jackson Hole boondoggle for everyone to sit and take notice again… Bob Marley greets me this morning with his great song: Three Little Birds…  “People don’t worry, cause every little thing is gonna be alright” … Apparently that song was first recorded in 1977, and first released in 1980… It sure doesn’t apply now, eh?
 
Well, I left you yesterday with the thought that the Gold & Silver performance in the morning wasn’t that bad ad if all things were equal the losses could be overcome on the day. Well, believe or don’t.. They were overcome, with Gold gaining $3.20, and Silver gaining back its 18-cent loss in the morning to finish the day flat as a pancake (Head East)… Gold ended the day at $1,752.50, and Silver at $19.21…
 
I told you yesterday that the dollar was way overbought, and that usually meant for a correction to come about in the markets, but these days no one knows what direction asset classes are going from day to day… Well, the dollar got sold in the US. Session yesterday, just like it did on Tues, only to see it come back in the overnight markets. The BBDXY lost 3 index points yesterday and ended the day at $1,289.24… The euro remained below 1, but it did add ½-cent to its value to climb closer to the 1 figure once again. Even with the dollar index losing ground, the currencies remain sickly looking… With the Petrol Currencies at least showing some life each day…
 
The price of Oil rose again yesterday, but this time only by 50-cents, but by doing so, it climbed to a new handle of $95… And bonds… Man, when the bond boys finally figured out that the Fed Heads weren’t going to pivot next month, they went to work on getting yields higher once again, and the 10-year Treasury yield has gone from 2.55% at the start of this month, to 3.10%, where it ended up yesterday…
 
In the overnight markets last night… Well, believe it or don’t, but the dollar got sold overnight too! The BBDXY lost 3 more index points overnight, and trades this morning at 1,286… The euro remains below 1, but some of the other currencies, like Norwegian krone, are looking as if they want to be healed…  
 
Bonds and Oil are sitting at their same levels as yesterday’s close: 3.10% and $95… There have been a parade of Fed Heads hitting the speaking circuit this week, and all of them, including the dove king, Neal Kashkari, have all talked about how the markets got it all wrong, and that interest rates have to go higher to combat inflation. 
 
Now, all the markets need is confirmation from Jerome Powell, in his Jackson Hole Boondoggle speech tomorrow. If he does paint a picture of gloom, despair, and agony on the U.S. for if it weren’t for bad luck we’d have no luck at all… then you forget about this strong dollar rally, and a return of the bear market rally in stocks. 
 
Of course, that’s not going to happen, for the deep state has a say in what Powell says tomorrow, and their speechwriters have probably got a pocket full of speeches that paint a different picture altogether. I’m just saying… 
 
China decided to fight Powell’s strong dollar yesterday and fixed the renminbi at a higher level than we’ve seen in a while. The Chinese could have been shooting a cannon ball over the bows of the short sellers of renminbi, and the short sellers have been multiplying by the basketful. 
 
The U.S. Data Cupboard yesterday, had a very disappointing Durable Goods Orders and Capital Goods Orders combination report… Durable Goods were flat as a pancake (Head East), and Capital Goods were supposed to be strong, but only gained .5%… 
 
And I might as well talk about the housing market that’s dropping like flies, and won’t get the chance to recover, as long as the Fed Heads are all talking about fire… This is from zerohedge.com on the housing number yesterday: “After yesterday’s dreadful collapse in new home sales (and Toll Brothers’ less than rosy picture overnight), analysts expected another monthly decline in pending home sales in July (though not as violent as the June plunge). They were right as pending home sales dropped 1.0% MoM (beating expectations of a 2.6% drop but that was largely driven by a downward revision for June data)…
 
This is the 8th monthly drop in the last 9 leaving sales down 22.5% YoY. Aside from the COVID lock-down, this is the biggest YoY drop since April 2011.Aside from the COVID lock-down crash, this is the weakest Pending Home Sales Index level since October 2011.”
 
So, not only are existing home prices falling, but also new home sales are suffering too… This is getting ugly, but, we have Super Potus to save them, for who knows, maybe he’ll follow up the student loan bail out with a bail out of home prices, he’ll guarantee that your home price will not fall! Boy am I glad we have leaders that see that these things need to be done! 
 
I’m being my usual smart alec there folks, don’t for one minute believe that I think the Gov’t should spend money they don’t have on boondoggles and things that shouldn’t be being bailed out… 
 
To recap… The dollar correction is going on as I write… It began on Tuesday, but then the overnight markets didn’t go along, so on Wednesday the dollar correction began again and this time the overnight markets played along. Gold is up to start the day today, after rallying yesterday to overcome the early morning loss. And housing is dropping like flies… Got Gold?
 
For What It’s Worth… I talked about how China had fixed the renminbi at a higher level yesterday, and then I found this article on Bloomberg.com that explains it, and so that’s our FWIW article for today, and it can be found here: China Starts Stealth Fightback Against Powell’s Strong Dollar – Bloomberg
 
Or, here’s your snippet: “China took steps to support the weakening yuan Thursday, after a resurgent dollar pushed the currency to a fresh two-year low.
 
The People’s Bank of China set its yuan reference rate at a stronger-than-expected level for the managed currency, as a widening monetary policy gap with the US continued to weigh. It was seen a signal the central bank wants to slow the pace of yuan depreciation, which has accelerated as aggressive bets on US rate hikes boosts the greenback.
 
“The strong yuan fix by PBOC could be a warning shot to speculators who bet against the yuan in volatile times,” said Fiona Lim, senior foreign exchange strategist at Malayan Banking Bhd in Singapore. “While a weaker currency can help improve its export competitiveness, the central bank needs to guard against a snowballing effect that can aggravate market volatility and worsen imported inflation.”
 
The PBOC had largely refrained from pushing back against the currency’s weakness until this week. It set Thursday’s fixing 120 pips stronger than the average estimate in a Bloomberg survey of analysts and traders — the widest gap since February 2020.
 
“These moves suggest subtle intervention to prevent further, rapid weakness,” said Peiqian Liu, chief China economist at NatWestGroup Plc.”
 
Chuck again… I’ve explained this many times in the past, but I’ll do so again because I haven’t done so in a long time… The Chinese currency is the renminbi, the slang name for it is yuan. The media uses yuan because it’s easier for them to say and spell…  I’m just saying… 
 
Market prices 8/25/2022: American Style: A$ .6973, kiwi .6236, C$ .7741, euro .9976, sterling 1.1838, Swiss $1.0373, European Style: rand 16.8287, krone 9.6661, SEK 10.5733, forint 409.24, zloty 4.7674, koruna 24.7079, RUB 60.02, yen 136.43, sing 1.3895, HKD 7.8470, INR 79.88, China 6.8470, peso 19.88, BRL 5.0924, BBDXY 1,286.43, Dollar Index 108.39, Oil $95.35, 10-year 3.10%, Silver $19.30, Platinum $884.00, Palladium $2,063.00, Copper $3.69, and Gold… $1,760.85
 
That’s it for today… I got a bit snippy this morning regarding the bail out of student loans… sorry about that, I just can’t get past feeling like a “Chump” for paying for my kids’ college expenses… Cardinals lose to the Cubs last night… Cardinals doing what they normally do, play to the level of their competition… They play a day game today, on get away day… The Braves come to town this weekend, now that will potentially be a good tough series… we shall see, eh? REO Speedwagon takes us to the finish line today with their great 70’s song: Riding The Storm Out…  I hope you have a Tub Thumpin’ Thursday today, and Please for goodness sakes, Be Good To Yourself! 
 
 
Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts