Intraday Market Thoughts

Archived IMT (2011.02.18)

by Ashraf Laidi
Feb 18, 2011 14:36

G20 WAR OF WORDS, NOT CURRENCIES: I do not see anything major from G20 that will be highly impactful on US dollar, but it is always important to observe how pressure is shifting away from China and onto US. Remember the Oct/Nov G20 meeting in Korea. At the Finance Ministers' summit in October, US Trsy Sec Tim Geithner started off w/ the usual demands for Beijing to move faster on FX. Most G7 Fin Mins agreed w/ him. But things changed at the leaders (presidents) part of the G20 summit in mid-November when fingers increasingly pointed to the Fed's QE2, branding it as a veiled competitive currency devaluation "beggar thy neighbour" which was responsible for the rapid appreciation in emerging mkt currencies. Thus, by the end of the Seoul G20 meetings, Geithner's demands were dampened as other leaders fired back at the US for its own unsustainable policies. I do expect the same pressure (or lack thereof) in Paris. One thing that could briefly weigh on USD is the G20s reiteration of the IMF's updated report from 2 days ago describing USD as "on the strong side", which is ANOTHER way of saying it needs to weaken against the Chinese yuan , i..e another way of saying China must further strengthen its currency. That could weigh on USD for a bit but not beyond 1-2 days. Average investors today no longer see G20 meetings as legitimate way for China bashing (on its currency) but a venue where 2 issues are raised about the US; 1) the Fed's controversial QE2 is depreciating its currency to the extent of triggering these "currency wars", or rather war of words. At the end of day, this will only reinforce investors interest that metals are a robust hedge for these cenbank policies. 2) the US is lacking the necessary "austerity policies" required to bring down the deficit, which are currently being implemented in UK & Eurozone. SEE PREV IMT for levels on EURUSD & EURGBP. AUDUSD still failing to break 1.0130s, but will need to close the week above 1.0150 to extend run-up to 1.0180s


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