EUR/USD - Dow direction

[Ninja]

Can anyone explain to me the relationship between Dollar strength and Dow direction?

[#2]

short and simple explanation when the usd increases in value means investors are selling equity and buying usd when usd is coming off, means investors are selling dollars and buying equity, this is the short and long of it but as I said it is not so simple you must also understand that there are forex traders that also manipulate the currencies as is currently the case with the yen - usd and yen - euro, all currencies are interlinked etc. so you cannot believe every time that there is relation between the usd and DJ equities

[_nova]

Momentum, you are partly right. There is a very strong inverse correlation between the USD and DOW in a healthy market. The one thing I can tell you with certainty is that only one currency trader ever managed to 'manipulate' the market, and that was George Soros when he taught the BOE a much needed lesson. And, anyway, it wasn't realy manipulation but rather common sense on his part when the Brits tried to stupidly keep a stiff upper lip against the odds. Only institutions such as central banks and sovereign funds can 'manipulate' the currency market, and they usually do it to their own detriment since currencies, like water, take the path of least resistance, and at some point they also run out of margin or cause damage to their own economies. In the battle between fear and greed, patience always wins. Within the context of this market the breakdown of the inverse relationship between the USD and the DOW last night is signifficant. If it doesn't correct soon, and persists, then you are going to see some serious draw down in the US markets. A flight from both the USD and the4 US markets is not a good sign at all. It will need a couple of days to confirm though.

[#4]

please note your own words "healthy market". the current market is not healthy actually very ill and many of the current movements are based on everything else as common practise.

[_nova]

Yep momentum, I agree. I wasn't knocking you, just pointing out that currency manipulation is rare and usually ends badly for the manipulator (Japan is a prime case study with it's lost decade. Quantitative Easing is a BS fallacy that only delays the inevitable and prolongs the pain). I have to admit though that for the first time this year I'm now actually really worried about where we're going. I don't think many people realise just how significant the situation is where you get a weaker USD and a weaker US market. If the perception takes hold that both the USD and the US markets are going to weaken, then you are going to see a stampede for the exits that will make Oct08 look mild by comparison. To give perspective to the idiocy of the immediate situation: US futures are up because of a $15bn agreement with the Detroit 3? $15bn is a drop in the botomless bucket of an industry that should have failed 15 years back. $15bn will keep them ticking over at wages of $73/h for another two months if they're lucky. $150bn might keep them going another 6 months and $1.5 trillion is what it will cost to eventually restructure these stupid, stupid companies, because the 'deal' misses a signifficant thing... the same idiots are still in charge, and the same union agreements of super high wages are still in place. These companies are going to fail within 12 months if they don't make big changes to their production costs. And this, this is what the US futures and Asia rallies about? There must be some seriously stupid 'investors' out there, and some very shrewd scalpers. The pro's are going to fleece the longs over the next 30 days.

[SimonPB]

nova, way way bigger issues for the small three then the wages. That's a red flag. Bottom line is that they make rubbish cars at high prices - compared to what the japanese can do and do do. They missed the change back in the 90's and they continued to push large gas guzzlers when the rest of the world was moving to smaller more economical cars. Not the gas price is up, an they are trashed (sure gas is down for now - but the large trend remains firmly up for the followign decades).

[#7]

The funny part is they actually have a date set March 31. If they don't have new structures in place, they'll have to file for bankruptcy. So, they have 3 months to get their structures in place, turn the economy around so that people will start buying their cars, basically developed and build new cars that is far better fuel efficient and turn their books around so that they can show how they'll be able to repay the billions of the taxpayers. So my question now is, will Santa's miracle savings plan last until Cristmas when everybody sees they did not get the presents they so much wanted? Or will they ignore everything and show the world how stupid they really are and wait until March 31 before they realise the inevitable? This is an inteligence tester for the yanks, and only time wil tell how low their IQs can go.

[#8]

just a question, is it possible that Asia is rallying based on a completely different set of fundamentals? Surely by now Asian companies have priced in the loss of sales to the US - so providing there are not still some hidden bombshells like additional bad debt on the scale of the sub-prime, the long time waited decoupling of hte US economy might actually start happening? what measure will finally start to confirm, deny this theory?

[#9]

He're some additional bad debt -> Somebody is lending somebody $15bn, and the chances are pretty good they won't be able to repay them...

[_nova]

Simon, I admit you're right, there are bigger issues. I was ranting because I kinna believe people are buying into this rubbish? I suppose one should take advantage of it but that's like killing bunny rabbits. Then again, rabbit stew is quite tasty nuh? Anyway, you gents are both right. It just seems like 'investors' have developed the collective memory horizon of caterpillars? Holy smoke man, You've got the US printing paper till they run out of trees, you got China definitely slipping into deflation, you got Detroit making cars nobody wants or can afford anymore, you got 2 bars of jobless yanks and probably another 3 bars next year, you got the moms and pops going bang at a staggering rate and strip malls standing empty (think commercial real estate loans with CDO's exceeding $3.7 trillion) so guess where the next shoe is going to drop?, US credit card and auto loans are at $2.6 trillion... and yes, oil is going to go back to $80 much sooner than main street thinks, like by middle 2009 latest. It doesn't matter how much congress dumps into Detroit, who is going to buy the cars, even if they're nice little green runabouts? John Maynard Keynes said it best: "What a Government spends the public pay for. There is no such thing as an uncovered deficit." According to the WSJ: "Commercial real-estate loans, including commercial mortgage-backed securities and collateralized debt obligations, total $3.7 trillion. It is only a slow burn right now: Many of those CMBS and CDOs mature in 2010 and 2011, leading Barrack to predict a "refinancing crisis" in the next three years-and with buyers drying up, egress will be difficult. "The overriding problem for all refinancing issues is that sale is not a viable option. Who stands to hurt the most? The list starts with the biggest holders of the loans, which include insurance companies, hedge funds and banks, specifically regional banks." Ben Bernanke, Nov 21, 2002 "U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost." And of course my personal favourite: "The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions .... Derivatives have permitted the unbundling of financial risks." (Alan Greenspan, May 2005)"

[#11]

I like that logic, Vitalstats... The recession is caused by reduced spending while deleveraging. The more "indispensable" companies get "bailed-out", the more it will prolong the deleveraging and the resultant recession. Only once capitalism is left to take it's course, will we have seen the bottom.

[Ninja]

Thanks guys....very helpfull! So last nights Dow decline was not in line with expectations. I cannot believe the Dow is up again today.....the fundamentals seem so at odds with the market.