Notes From Underground: Outlook Around the World

Very little news and action after the wild ride on Friday’s unemployment.

The DOLLAR stayed relatively strong after its significant rally on Friday. The YEN regained some ground on all the crosses as we have word of a stimulus package out of Japan. The DPJ finally approved a 80.6 billion dollar stimulus plan and this gave some immediate support to the YEN, but we don’t expect this to last as the Japanese are nervous about a strong currency while deflation is renewing its vigor. Now that a stimulus program has been approved we need to be watchful of some type of intervention to stem the recent YEN strength.

Tomorrow morning we will hear from the Bank of Canada. We expect no change in their current interest rate as the CANADIAN DOLLAR remains relatively firm and this has been a concern of the Bank. If the currency weakens after the no change we would look for the LOONIE to regain its strength as its fundamentals remain the most attractive. Wednesday will bring the PBR from Britain. Chancellor Darling will deliver his outlook for the British economy and we are waiting to see if the budget will reign in the massive amount of stimulus that has run the current deficit to more than 12% of GDP.The question is curtail spending or raise taxes.

If the budgetary stance is for cuts in spending we don’t anticipate much movement in the STERLING but we believe that higher taxes would have a negative effect. Britain has to be careful to not tax the financial jobs out of LONDON as some hedge funds and private equity groups have already announced their intentions to move to more favorable business environs. This coupled with the anti anglo-american sentiment emanating from Brussels, the British need to keep their financial markets globally competitive or risk losing the golden goose. The euro/sterling cross will be very directional for this sentiment–as always check the technicals to ascertain the real story. If Euro/sterling holds support, we will see continued weakness in the british currency.

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