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What’s Going On With Pound Sterling?

* Currencies remain steady Eddie.
* Gold loses $9 to reason, no data.
* NZ CPI beats expectations, kiwi rallies.
* Stuck in the mud .

And now. Today’s A Pfennig For Your Thoughts.

Good Day. And a Tub Thumpin’ Thursday to you! Front and Center this morning, my younger sister, Joan, celebrates her birthday today. So. Happy Birthday Joanie! I got to have lunch with Joanie when she came home from Houston, for Christmas. I was her big brother growing up. There’s always a bond there when that happens. I’m greeted this morning with the Moody Blues and their song: I’m Just a Singer In a Rock-n-Roll Band.

Well, yesterday, the currencies continued their recovery from the latest round of dollar strength that came about after the election. The Dollar Index fell below 100 (as I said it would earlier this week) and closed the day at 99.81. And for the most part, all the currencies took their turn at pin the tail on the dollar.. Then the overnight markets took over and first in Asia, we saw more of the same selling of the dollar and buying of the currencies. And then, the handoff to the European session, brings us to where we are right now, and the dollar has moved up past 100, barely, and the currencies just seem to be drifting this morning waiting for something or someone to move them in a clear direction.

The euro seems to be stuck in the mud as it trades around 1.0740 day in and day out for the last week. But the pound sterling has really attracted investors lately, and continue to climb higher each day. What gives with this currency? Well, if you read the Pfennig yesterday, you would recall that I highlighted an note from investment guru, Steve Sjuggerud, who is one of those investors attracted to the pound. I received an email from a reader in London, who wanted to know what’s going on with his currency, because he sees nothing going on in the U.K. that would warrant such a rally.. Well, inflation is picking up in the U.K. for one thing, and that, if continued, could lead to a rate hike. You know the rate hike that Bank of England (BOE) Gov. Carney talked about 2 years ago?

In fact, this pound rally reminds me of that time a couple of years ago, when the pound was the cat’s meow, due to rate hike talk by Carney. Longtime readers will hopefully recall, that I wasn’t buying that rate hike talk, and said the pound rally was smoke and mirrors. I was proven to be correct a few months later, when the markets got tired of waiting for Carney’s rate hike, that has never come. But you don’t tug on Superman’s cape, you don’t spit into the wind, you don’t pull the mask off the old Lone Ranger, and you don’t mess around with a rally!

The U.K. will print their 4th QTR GDP report today, and that will be quite telling for the pound traders, and the prospects of a rate hike here. yes, I know, I know, this report is looking backwards, but that’s how these things all work. With GDP you don’t get results until you’re well into the following QTR. For instance we won’t get 4th QTR GDP here in the U.S. until tomorrow! And then it’s just the first print, there will be 3 revisions in the offering.

Another thing to think about here in the U.K. is if for some unknown reason, thing start to look better. That will boil the European Union’s (EU) minds. The EU cannot have the U.K. doing better after leaving the EU, because the other “on the fence” countries could point to the U.K.’s success and think they too could have that.

Well, it looks like I lost my dollar bet. The Dow topped 20,000 yesterday, so it reached its “20” before the National Current Debt reached its “20”. The Debt did reach $19.965 Trillion as of this morning, when I made the bet last week it was $19.961 Trillion. Of course all I had to do was say that stocks seemed to be going in reverse, and voila! A stock rally rose up to take out 20,000! I was taught, and I’m sure you were too, that “trees don’t grow to the moon”. And that’s what I think about every time I look at the stock market here in the U.S. But there’s always a chance a tree could grow even taller, given there’s nothing above it to impede its growth!

Well, Gold got sold yesterday and closed down $7.80. At one point it was trading below $1,200 at $1,192, but that didn’t last long, and the shiny metal climbed back above $1,200, barely.. Today is options expiration, which normally sees Gold get sold. Options expiration is always the 3rd Thursday of a month, and so, lots of options expire worthless, but a lot them don’t, and those that don’t are usually held by the Bullion Banks and that’s all I’ll say about that. So, today could very well be one of those, “buy the dips” days for the shiny metal. I’m just saying.. “could” would be the operative word there. Because it “could” not be one of those days!

The price of Oil bumped higher back above $53 in the past 24 hours. Oil traders need to figure out if they want to take the price higher or wallow around in the mud, like the euro has been doing. When I was a youngster, playing my guitar in the band, my friend, Preston, who was our drummer, and I would say that someone was “an old stick in the mud” when they wouldn’t budge on their thoughts or ideas. I think I’ve become “an old stick in the mud” I saved a cartoon last year that best describes me most days. The grandson asks his grandpa what he will be for Halloween, and the grandpa responds: A Grumpy Old Man, and the grandson says, but that’s what you were last Halloween, and the grandpa say, ” And last Christmas, and last Easter, and last Valentine’s Day and. I saved it because Kathy calls me a Grumpy Old Man all the time.

Well that conversation regarding Oil, sure changed quickly didn’t it? HA! But longtime readers have come to expect these times when I go off on a tangent or down a rabbit hole, but eventually come back out to what they came to read about. and not my silly tangents!

I told you yesterday that New Zealand would print their 4th QTR CPI last night, and that print beat expectations, printing at 1.3% VS 1.2% forecast. And kiwi rallied. Once again this strange vision that traders have these days, regarding inflation. They see inflation and their eyes bulge out of their heads as they see rate hikes in the future. But what happens when inflation takes off for higher ground, and then the Central Bank is chasing it, as what usually happens with inflation? You know, the “real interest rate” is the deposit rate minus inflation, and in a country like New Zealand where the internal Official Cash Rate (OCR) is only 1.75%, that means real interest here is only 45 Basis Points, or less than 1/2%…

The point I’m trying to make here, and probably not doing a very good job of it, is simply that it won’t take that much inflation growth to wipe out the OCR. So, traders need to be aware of this, and not get so darn giddy over rising inflation!

The Swiss franc is back to parity with the dollar this morning. Barely, but there! And that’s what counts! So, let’s see here. we have yen stronger than it was, the pound stronger than it was, euros stronger than they were, and now francs joining in. That’s the majors folks, and those are the ones to watch to see if the strong dollar trend is ending, and from the looks of the performance of these majors, one could make a strong argument that strong dollar trend is nearing an end. Gold has only had 3 trading days this month where it closed down, and once we get past this option expiration today, let’s see where traders take Gold.

The Mexican peso finally got on the rally tracks even with the threat of a wall being built between the U.S. and Mexico and the renegotiation of NAFTA.. Mexican Retail Sales were off the charts and made traders look past these two potential pot holes, and push the currency appreciation envelope for the peso yesterday and last night. The peso still trades with a 21 handle though, so they haven’t looked too far past these potential pot holes!

Man, I’m so tired today, really draggin’ the line.. Making a living the old hard way. I was busy doing a lot of writing yesterday, and never got my nap time in, and I’m paying for that today. Talk about something else that’s draggin’ the line, and that is Caterpillar who just announced yesterday that they had posted 49 consecutive months of declining Retail Sales. YIKES! My friend, and publishing giant, Bill Bonner wrote recently about the Big Yellow machines, and how without them showing up you don’t have any economic growth. The Big Yellow machines he’s talking about is the earth moving tracks, backhoes, etc. And now a few weeks later, Caterpillar prints this report. What does that tell you? I know what it tells me, and that is that the economy is going nowhere, but don’t let that get in the Fed’s way they’re going to hike rates and drive bond yields higher come hell or high water this year. And you can look for your first rate hike at their meeting in March.

The U.S. Data Cupboard finally gets restocked today, although the main attraction piece of data won’t print until tomorrow, there are some lower tier reports today, so let’s go check them out, eh? First out the gate today will be the Trade Balance, which should automatically tell you that it will be a Trade Deficit, and with the dollar strength last month, it could very well top $65 Billion for the month.. We’ll also see December leading Indicators. I always laugh when I type that, because this is one of those forward looking piece of data, but it’s from numbers derived a month ago! Sort of like an oxymoron, or jumbo shrimp, or rap music.Don’t expect any wild number here, this should print flat. And then there’s New Home Sales for December, and finally the piece of data that prints every Tub Thumpin’ Thursday and that is the Weekly Initial Jobless Claims. should print around 250,000.

To recap. Not much happened in the way of currency movement yesterday and through the overnight sessions. Lack of data, lack of inspiration, or just lack of something, has the currencies, for the most part, stuck in the mud. The Dow crosses 20,000 yesterday, and Chuck loses a buck! New Zealand CPI beat expectations and kiwi rallied on rate hike expectations, and Chuck warns about rising inflation. The U.K. will print their 4th QTR GDP report today, and it will go a long way toward extending or ending the current rally in pound sterling. Gold got sold by over $9 yesterday, ahead of the options expiration today, which is normally not a good day for Gold, and the price of Oil bumped back over $53.

For What It’s Worth. I found this on Ed Steer’s letter today and it comes from Casey Research and it’s a writer’s take on the Davos Conference that’s held every year in Switzerland. Pretty interesting take I must say, and you can read it all here:

Or Here’s Your Snippet: “It’s a big club and you ain’t in it!”

I often think of these words, spoken by the great comedian George Carlin, when I read about the World Economic Forum meeting in Davos, Switzerland.

Every year, global elites descend on Davos to discuss the big issues of the day in a Bilderberg-like conclave. This year, George Soros was there. So was Bill Gates.

The most important world leaders go. As do CEOs of the world’s largest companies, mainstream media bigwigs, and prominent academics. Central bankers attend, too.

In short, it’s a bunch of out-of-touch, self-anointed elites meeting to hand down from above their uniformly bad “solutions” to the world’s problems. Then they pat each other on the back for all the good they’re doing.

No matter the problem, their prescription is always more welfare, more warfare, more money printing, more taxes, and of course, more centralization of power into global institutions.”

Chuck again.. Nick Giambruno of Casey Research is an excellent writer, and puts things so that normal people “get it” and I like that about him. I used to be one who made fun of the Davos conference, but then decided that I didn’t change things so why be so bitter about it? And now I have Nick to do my dirty work! HAHAHAHAHA!

Currencies today 1/26/17. American Style: A$ .7555, kiwi .7274, C$ .7640, euro 1.0740, sterling 1.2667, Swiss $1.008, .. European Style: rand 13.2215, krone 8.3095, SEK 8.8050, forint 288.77, zloty 4.0520, koruna 25.1550, RUB 59.22, yen 113.66, sing 1.4178, HKD 7.7576, INR 67.99, China 6.8767, peso 21.02, BRL 3.1684, Dollar Index 100.02, Oil $53.08, 10-year 2.54%, Silver $17.08, Platinum $983, Palladium 734, Gold $1,201.70 and SGE Gold $1,209.73

That’s it for today. Well, another day, another Chamber of Commerce day here. And it appears that today will also fall under that category for days. YAHOO! Longtime readers will recall how I used to whine about the cold weather back home, and how I used to quote Jimmy Buffett all the time, saying, I’ve got to go where it’s warm. Well, I finally did! 18 days until pitchers and catchers report! And that means that you’ve got 18 days to get something for your sweetheart for Valentine’s Day. I still haven’t gotten my season tickets for Spring Training games, I talked to the ticket office manager last week, and he said it would be a couple of weeks before they got them out, and I about had a cow! Oh well, patience has never been a trait of mine! But I am much better these days! Our friends that we’ve made in the condo unit all met out on the deck yesterday afternoon for Happy Hour, it was fun. Elvin Bishop takes us to the finish line today with his song: Fooled Around and Fell
In Love.. I only have two Elvin Bishop songs on my iPod, and with all the song I have on there, I don’t hear either of these two songs very often. So, this was a treat! And with that, I hope you have a Tub Thumpin’ Thursday, go ahead and do some Tub Thumpin’ you’ll feel better that you did! And don’t forget to Be Good To Yourself!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts

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