ECB’s Baffling Comments
July 24, 2017
Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.
The US$ continues to weaken vs the Yen with the focus this week upon the FOMC meeting that begins tomorrow and ends Wednesday. The FOMC meeting follows last week’s meetings by the Bank of Japan’s and by the ECB’s monetary policy committees, both of which ended with no changes being made to the banks’ respective interest rate policies. However, many… and we are still baffled by this fact… came away from the ECB’s meeting believing that the Bank was prepared to move to tighter monetary policies in the near future despite that fact that Mr. Draghi made it quite clear that he and they were prepared to maintain “A substantial degree of monetary accommodation” needed to sustain inflation “close to two percent over the medium term.”
On Friday and in early Asian forex dealing, as the EUR moved upward through 1.1650 vs. the US dollar as “stops” were being touched off that were sufficient to send the EUR toward 1.1675. However, that’s been all that the EUR has been able to muster since, and as we write it is weakening a bit from those highs as the markets and has traded to 1.11625… briefly.
The Yen traded to 110.50 and as the chart this page suggests at that point it had fallen down to and a bit through the bottom of the range denoted by “The Box.” Nonetheless, we pay heed to The Box for history tells us that we must and should. However, we would very much like to see the dollar find support today and prove its merit ahead of the FOMC meeting, but at the moment that possibility looks less and less likely.
We are all the more surprised by the Yen’s strength in light of the fact that the political environs in Japan are worsening as Mr. Abe’s popularity continues to falter with his popular support ratings falling below 30% to a new Administration low. Mr. Abe has been plagued by the reports of favoritism accorded a friend over the placing of a school of veterinary medicine and although Mr. Abe went out of his way over the weekend to further deny the accusations thus far his efforts have gone to no avail.
Further, the economic news out of Japan today was a bit disappointing in that the Markit/Nikkei Flash Manufacturing Purchasing Managers Index fell marginally… and we do indeed mean marginally, for it fell from 52.4 last month to 52.2 this morning. In our terms, 52 is 52, for we have learned over the decades that moves in the PMIs to the right of the decimal point are utterly unimportant and that only movements to the decimal’s left have relevance and can be or should be traded upon.