Hi!!! We have compiled this fundamental report containing a list of factors that affect the movement in USD against global currencies. Also we have briefly summed up the medium term view on USD.
We have tried to cover all important points, but we’ll be happy to receive feedback from you guys!!! 
Please find the attached report.
USD fundamental report revised.pdf (396 KB)
To Sum Up
Recent data releases with respect to housing and employment markets
indicate picking up of US economic activity.
Mhmmm…
Intrinsic US economy strength to improve continuously on account of
following factors:
ďż˝ Lower trade deficits supporting USD.
Mhmmm…
The US international deficit in goods and services increased to $32.0 billion in July from $27.5 billion (revised) in June, as imports increased more than exports.
Goods and Services
Exports increased to $127.6 billion in July from $124.9 billion in June. Goods were $86.7 billion in July, up from $84.1 billion in June, and services were $40.9 billion in July, up from $40.8 billion in June.
Imports increased to $159.6 billion in July from $152.4 billion in June. Goods were $129.4 billion in July, up from $122.4 billion in June, and services were $30.2 billion in July, up from $30.0 billion in June.
For goods, the deficit was $42.7 billion in July, up from $38.3 billion in June. For services, the surplus was $10.7 billion in July, down from $10.8 billion in June.
ďż˝ Lower interest rates stimulating growth and revival of housing and
employment markets. This is validated by the empirical data where
these markets have responded positively to lower interest rates with a
lag effect.
Mhmmm…
QE is not the same as lower interest rates. Because QE was never implemented before empirical data is therefore meaningless.
ďż˝ Gradual rise in inflation likely to push USD yields up. This shall be USD
positive.
Mhmmm…
Not as long as there is no exit strategy from QE.
In view of above, We look at US GDP actually expanding in Q1 of FY 2010 and therefore stronger USD beginning FY 2010
Mhmmm…
WHO is supposed to be the driver for US GDP expanding…? Surely not the maxed out and un[der]employed US consumer.
In the interim however, large budget deficits and hugely accommodative
FED monetary policy shall weigh on USD
Mhmmm…
I can smell a “Sudden Stop” Event. Meaning a sudden currency devaluation of the USD in the internim.
When the obligation is perceived to have increased far beyond the level justifiable by the assets, which in this case make up a country�s economy, a bubble has formed.
Rolfe Winkler ďż˝ Blog Archive ďż˝ Why gold if deflation is the threat? | Blogs |
good post Cas
@September 14, 2009 Janet L. Yellen President of SFA FED made the following remarks in regards to QE…
[I]The fear of higher long-term inflation reflects, to a large degree, worries about Fed monetary policy. Our array of new programs to spur the economy have pumped up our balance sheet and created a huge quantity of bank reserves in the process. [U][B]Some worry that we won�t be able to shrink our balance sheet because of political pressures, and in the process we will end up monetizing the government debt. This fear is real, growing, and disruptive.[/B][/U][/I]
[B]That’s exactly what the Obama administration is trying to do. Exercise politcal pressure on the FED in order to [U]widen QE and monetize government debt[/U].[/B]
If the Obama administration succeeds…and the signs are there that this is about to happen…the USD would need be devalued in order to maintain confidence.
Because if confidence is lost we would be on the road to hyperinflation.
Hyperinflation has it’s roots in lost confidence…in this case it would be the USD, the world reserve currency.
Once confidence is lost in a currency a downward spriral develops within a very short time frame.
An USD devaluation would generate a chain reaction in it’s relationship to other currencies expressed in it’s exchange rate. A so called “race to the bottom” because other central banks would devalue their particular currencies as well to maintain so called “competiveness” in regards to their exports.
This is a pretty tricky situation the FED finds itself in. That’s why the following words were spoken…
[I][B][U]That�s why it�s so important for me to say the following loud and clear: We at the Fed are and will remain fiercely independent from politics. We have the means�and we certainly have the will�to tighten policy when the time is right.[/U][/B][/I]
Interesting times ahead.
President’s Speech: The Outlook for Recovery in the U.S. Economy (09/14/2009)
…looks like something is on the cards…
…[B]Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading[/B]
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
[B]The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong[/B], may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
[B]The Americans, who are aware the meetings have taken place ďż˝ although they have not discovered the details ďż˝ [U]are sure to fight this international cabal[/U] which will include hitherto loyal allies Japan and the Gulf Arabs.[/B]
Against the background to these currency meetings, Sun Bigan, China’s former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. “Bilateral quarrels and clashes are unavoidable,” he told the Asia and Africa Review. “We cannot lower vigilance against hostility in the Middle East over energy interests and security.”
SOURCE: The demise of the dollar - Business News, Business - The Independent
Interesting times indeed.
[I]�America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate.�[/I]
[B]�Robert Fisk�s Chinese Banking Source[/B]
[B]Oil States Say No Talks on Replacing Dollar[/B]
[I]Denial of News one Post below.[/I]
Via: [B]Reuters[/B]:
Big oil producing nations denied a British newspaper report on Tuesday that Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies in trading oil.
The dollar eased in response to the report, which was written by The Independent�s Middle East correspondent Robert Fisk and cited unidentified sources in Gulf Arab states and Chinese banking sources in Hong Kong.
It said the proposal was for trade in crude oil to move over nine years to a basket of currencies including the Japanese yen, the Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, which includes Saudi Arabia and Kuwait.
The report coincides with a wider debate on the role of the dollar as the world�s reserve currency, which has come under question. For most of this decade, the United States has struggled to maintain the dollar�s value.
But top officials of Saudi Arabia and Russia, speaking on the sidelines of International Monetary Fund meetings in Istanbul, denied there were such talks. The two countries are the world�s largest and second-largest oil exporters.
Asked by reporters about the newspaper story, Saudi Arabia�s central bank chief Muhammad al-Jasser said: �Absolutely incorrect.� He repeated the same response when asked whether Saudi Arabia was in such talks.
Kuwait�s oil minister and a well-placed source in the Organization of the Petroleum Exporting Countries made similar remarks. Russia�s deputy finance minister Dmitry Pankin said: �We did not discuss this at all.�
The dollar slipped in the wake of the newspaper story. The euro edged up as high as $1.4749, although it fell back to $1.4701 when the Saudi Arabian and Russian officials denied the report. Oil prices rose above $71 a barrel on Tuesday.
Algerian Finance Minister Karim Djoudi told Reuters: �Oil producing countries need to stabilize revenues but�I don�t see a need for oil trade to be denominated differently.
�But we are at the IMF conference where all sorts of subjects are raised and discussed,� he added.
[B]�NOT LIKELY�[/B]
Analysts said that while individual countries would find it relatively easy to stop using the dollar in oil trades, as Iran has done, replacing the currency in which oil is priced would require a massive effort.
The newspaper story did not make clear how the change would work, and many analysts doubted it would occur any time soon.
�I don�t think this is a likely scenario in the short to medium term,� said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt. �Without Saudi Arabia�s support it is difficult to imagine that the dollar will be replaced.�
Saudi Arabia and some other Gulf states peg their currencies to the dollar.
Russia has in the past raised the idea of shifting its oil trade away from the dollar, which has been undermined by the U.S. trade and budget deficits. China has suggested that in the long term, the dollar should lose its role as the globe�s top reserve currency.
But strong political links between Gulf nations and the United States, as well as the lack of convertibility for many Gulf currencies and the yuan top the list of practical hurdles to replacing the dollar.
�If there was already a significant proportion of global oil trade being priced in non-U.S. dollar now, than perhaps there would be more pressure to price crude in another currency,� said Victor Shum, analyst at Purvin & Gertz in Singapore. �But we�re still far from that.�
�WORTHLESS PIECE OF PAPER�
Iran, which a few years ago began increasing its sales of oil in currencies other than the dollar, has made a huge profit from the policy, Central Bank Governor Mahmoud Bahmani was quoted as saying on Tuesday.
Iranian President Mahmoud Ahmadinejad has called the U.S. currency a �worthless piece of paper.� The Islamic state is under U.S. and U.N. sanctions over its disputed nuclear programme.
The Independent�s story said: �Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.�
France had also been involved in the talks, it said.
The Independent said U.S. authorities were aware that the meetings had taken place but had not discovered the details and were �sure to fight this international cabal.�
Scared to death of these levels - maybe its time to sit out and wait for a downside break. And a big thank you to Trichet for helping to pummel my beloved dollar even more!
The Dollar reached a 14 month low against all majors after continuous signs of global recovery increase investors’ appetite for risk. Adding to that was the U.S. Initial Jobless Claims that decreased to 10-Month Low of 521,000 and pushed the investors to higher yielding assets. NASDAQ and Dow Jones rose by 0.64% and 0.63% respectively. Crude oil jumped by 3%, closing at 71.69$ a barrel on the back of the Dollar’s weakness and despite an increase in oil and gas inventories. Gold (XAU) reached to a new record high of 1060$ but closed lower at 1055$ an ounce. Today, Trade Balance is expected to slightly decrease from -32.0B to -32.8B.
What got Trichet/ECB to do with it…
It’s easy to put the blame on Europeans when [B]nobody[/B] in the US of A has got the guts to stand up to Wall Street, draw the red line and say “Enough is Enough”.
US Congress should have done that a long time ago. The only one who really tried/tries was/is Ron Paul.
But what can you expect from a bunch of “elected” members of Congress who think they are only accountable to their donors aka lobbiests.
Ron Paul is explicitly excepted.
Nice post Casa…infact I was about to ask you, that why isn’t US government or Fed taking any stance on the present scenario, that the world’s reserve currency has become a carry currency…
There has been no verbal intervention…though of course they are stuck in a straight jacket situation, where in they can’t really appreciate their currency nor raise their interest rates and recently Bernanke had made a statement regarding increase of interest rates as economy improves but then he also added that the “accomodative” policy will continue for a longer time than expected…
So what immediate action can be taken by Fed right now to support dollar… Also i read in a report that an Economy like US, where imports are greater than exports and that too with a large gap, will the devaluation of USD prove to be helpful…
Also recently on Bloomberg there was an article that Central Banks have increase their foreign currency investments to $7.3trillion from $413billion in EUR and Yen out of their surplus reserves…this means that the Dollars pumped in by Fed to the tune of $787 billion are actually not getting invested back in US but rather in other currencies…
Nice post Casa…infact I was about to ask you, that why isn’t US government or Fed taking any stance on the present scenario, that the world’s reserve currency has become a carry currency…
There has been no verbal intervention…though of course they are stuck in a straight jacket situation, where in they can’t really appreciate their currency nor raise their interest rates and recently Bernanke had made a statement regarding increase of interest rates as economy improves but then he also added that the “accomodative” policy will continue for a longer time than expected…
So what immediate action can be taken by Fed right now to support dollar… Also i read in a report that an Economy like US, where imports are greater than exports and that too with a large gap, will the devaluation of USD prove to be helpful…
Also recently on Bloomberg there was an article that Central Banks have increase their foreign currency investments to $7.3trillion from $413billion in EUR, Yen, gold and crude out of their surplus reserves…this means that the Dollars pumped in by Fed to the tune of $787 billion are actually not getting invested back in US but rather in other currencies…
Thx. 
The FED is powerless to do anything about it.
On one hand the FED is supplying cheap money to keep Wall Street banks afloat and on the other hand the FED can’t expect Wall Street banks not to put all that freshly printed FIAT to use.
The FED has got a “catch 22” situation.
I don’t think there is any solution for it. If the FED starts draining liquity to support the USD we will see a collapse of the global Financial System. Wall Streets banks are on life support. Their capital base is destroyed because of the mountains of worthless paperinstruments their holding in their books valued at artifical mark to market rates. Hoping that one day a recovery will bring back it’s value.
It’s not gonna work that way.
The FED will just keep printing money under a different name. QE will be continued.
Raising interest rates will kill the real economy. There isn’t any credit demand anyway because of economic contraction. The only ones who are benefiting are Wall Street Banks who are getting supplied with cheap money until infininty.
[B]Sudden Stop event.[/B]
I think that’s what is gonna come down to. Either USD de-valuation and/or a reorganistion of the worlds world reserve currency structure.
It doesn’t matter anymore.
The FED with it’s QE will simply monetize everything. Until something breaks. And then they will just restructure the global financial system.
With national debt so high of GDP, and having no solid income showing in the next couple of years to come, with zero interest rate policies, no doubt they are killing the dollar on purpose. ONly question i have is if not US Dollar what else? Where else people can park their money including central banks? Euro does not sound a positive alternate too. Lot of economist(Well reputed ones) are calling for double dip recession which is likely to occur in fall 2010. I think their logics make sense with derivative defaults and large amount of mortgage Arms adjusting between next year and year after i see fed will not be able increase rates infact they might have to continue with QE process for a while that will obviously kill the dollar and its status as world reserve currency.
Physical Gold in 1kg bars = 33 troy ounces…! 
and/or
Physical Gold in non-denominated Gold Coins = 1 troy ounce…!
That’s what Central Banks do. Their 400 troy ounce bars physical Gold holdings are a hedge against debauching their FIAT currencies through monetary expansion.
With physical Gold in their posession [U]anybody[/U] can start again in case a particular FIAT currency goes down the drain.
It has been like that for almost 5000 years and it will be like that for the next 5000 years.
If people do what Central Banks do…people will be fine. Because Central Banks have been around for almost 300 years and they will be around for a long time to come.
We experienced a little bounce in the USD and if Bernanke doesn’t shock us, we may be pippin’ later on today when the NY session is is full gear. As much as I like charting/technical analysis - I’m never opposed to making a buck, jappy, cable, etc. off of these policy wonks and their diatribes. Which way do you think the dollar will go after Bernanke takes the microphone? Your thoughts are much appreciated. Still thinking about shorting XAU too. Made some quick bucks last week doin’ it. Anyone else sell for the trade?
The Dollar ended Friday’s session mixed, rising versus Euro and the Yen and declining versus the Pound as Industrial Production was higher but Consumer Sentiment was lower. Industrial Production rose by 0.7% better than 0.1% expected, but University of Michigan’s Consumer Sentiment was surprisingly lower with 69.4 versus 73.6 forecast and 73.5 prior. NASDAQ and Dow Jones declined by -0.76% and -0.67% respectively, as bank stocks declined sharply. Crude advanced by 1.2% closing at 78.65$ a barrel. Gold (XAU) finished almost flat with 0.12% change, closing at 1052.25$ an ounce.
I think this is the most important sentence spoken by Bernanke today…
[B][I]“One way to address it would be through some [U]greater exchange rate flexibility[/U],” Bernanke said.[/I][/B]
Bernanke was referring to the YUAN/REMBINI.
There is no doubt in my mind anymore that we will see a [B]bi-polar[/B] world reserve currency system.
The USD is going to share it’s world reserve currency status with the YUAN/REMBINI.
In what form and what technical implementation remains to be seen.
Perhaps that what the sudden stop event looks like that’s looming very large.
[I]And “elected” members of Congress simply carry on…nothing has changed…[/I]:mad::mad:
via Bloomberg
[B][U]Morgan Stanley Resumes PAC Giving After TARP Funding Repayment[/U][/B]
By Jonathan D. Salant
Oct. 20 (Bloomberg) – [U]Morgan Stanley’s political action committee resumed donations in the third quarter of this year after the New York-based investment bank paid back its U.S. taxpayer rescue funds[/U], Federal Election Commission records show.
The PAC had ceased making campaign contributions until Morgan Stanley repaid $10 billion in June under the Troubled Asset Relief Program. After making no donations during the first six months of this year, [U][B][I]Morgan Stanley gave $157,500 between July 1 and Sept. 30, including $120,000 in September.[/I][/B][/U]
The investment bank made $374,000 in political contributions during the first nine months of 2007; its donation total for the comparable period this year represents a 58 percent reduction.
“Since repaying TARP, Morgan Stanley’s PAC has resumed normal PAC-related activity,” Carissa Ramirez, a spokeswoman for Morgan Stanley, said in an e-mail yesterday.
Most of the other large U.S. financial institutions have reduced their political giving at a time when Congress is drafting new financial regulations. Just two of 10 institutions reported increases in their PAC contributions through the first nine months of this year, compared with the same period in 2007.
Morgan Stanley has long been a major political giver. Its employees contributed $3.7 million for the 2008 elections, fifth among financial companies, according to the Center for Responsive Politics, a Washington-based research group.
Donation to Frank
[B][I][U]The company’s PAC donations this year include $2,500 to Representative Barney Frank, a Massachusetts Democrat who chairs the House Financial Services Committee. Frank’s panel is writing the revamp of financial regulations. The PAC also gave $5,000 to Representative Melissa Bean, an Illinois Democrat, and Representative Jim Himes, a Connecticut Democrat. The two lawmakers co-chair the financial services task force of the pro- business New Democrat Coalition.[/U][/I][/B]
The PAC of Bank of America Corp., the biggest U.S. lender, gave $195,000 in donations during the first nine months of 2009, as compared with $349,122 during the same period in 2007, a decline of 44 percent.
