amidst everybody attention on EURO, Yen has broken 106 convincingly. I used to forecast 106 as the interim top, it hit and bounced off, came back again and now at 106.80.
When everybody is going to hike, ECB, FED, BoE (sooner), only BoJ does not have the reason to hike.
This is at least what the market is believing now.
However, US economy is going to be so weak that Inflation is going to subside, while other countries are grappling with high inflation.
Hence, Bernanke recent tough talk is just a farce. Bernanke's greatest fear is not Inflation but Deflation (or the arrival of the Kondratieff Winter).
He is just talking about Inflation, USD on behalf of the Treasury, as he is a lackey of sort of the Bush administration.
When the Democrats take over, or when it is know they would in Nov. Bernanke would be facing last term in office.
Hence his priority now would be to hype the Americans into believing everything is fine, the FED is ahead of inflation. So that McCain has a fighting chance in winning, and also to deflect any Democrats accusation of a mismanaged economy. Bernanke is into damage control mode. Hence he would not hike well into November, but he would keep up with the talk, together with other hypocrites.
Though it is wisdom not to fight the FED, but do note that they have been wrong with their explanation of the "Inverted Yield Curve", the abrupt 75bp rate cut in Jan.
No doubt, Europe economy is in doubt, just as we would doubt emerging economies continued growth, China economies, at least ECB is more credible than the FED.
Bernanke and Trichet has just launched the new wave of Carry Trade well for the next 1 yr. We would see USDJPY back to 120 area, while more gain for EURJPY.
Meanwhile, German Wholesales price index came up, it is higher than expected.
As for Oil, look forward for it to limp forward towards 150 then 200 eventually. While Saudi came out with talks of meetings between Oil Producer and Consumer, it only serves to provide fuel for the Commercials to hedge at current levels, more short positions for the next rise.
Dun be surprise that the Princes and Kings are funnelling the Oil monies back into those commodities and oil hedge funds.
Reason: if you know you are running low on Oil reserve, every drop of it is going to be more precious that before. In fact the last drop of Oil from Saudi, Nigeria, Iran, Venuzuela would be priceless. "Peak Oil" has happened, it is now "Drying Oil".
Countries would now move onto Nuclear. With UK restarting its Nuclear program, similarly for other muslim countries, e.g. Pakistan, Indonesia, etc.
As Israel hawks are gain an upper hand over the weak Olmert, and the Israel knows that Obama is dead against military actions on Iran. Israel may well launch its pre-emptive strike on Iran before Bush leaves office, or more so before the November election, so as to provide cause for McCain to rally the nation.
Hence Isreal may seize first strike as it had done on Syria nuclear facilities, and launch a air strike on Iran. However, Russia may be providing the surveilance for Iran. Hence it is a pretty sticky situation. We may have a mini-war in ensuance. Bush is staged for this event with its loyal generals in command.
Note that recently Bush, Condi, Cheney have been unusually low profile on Iran matters.
Last note, as for the Pound, it should see greater strength only on 2010-2012, when it is going to hold the next Olympics. Housing fever would return to United Kingdom with its already starve land and growing population. Meanwhile GBP is waiting to go-down, not up. GBP is highly manipulative, as I always warned, stay out of GBP. The high volatility is not worth the risk.
Hence happy trading, if you need a Sherpa to guide you on your currency trades, email me at dollarproaragon@hotmail.com for subscription.
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