wmeubank@ocp.kcmo.com
(April 30, 1997) CURRENCIES: The G-7 central banks have agreed to prevent the U.S. Dollar from rising any higher at all costs. This puts the G-7 banker's at war with the global marketplace. Usually the G-7 bankers win. There is bullish divergence between the Swiss Franc and the other European currencies. There is also bearish divergence between the U.S. Dollar Index and a lower high on its stochastic indicator. Time to buy Swiss Francs and sell U.S. Dollars? A higher U.S. Dollar in terms of international trade translates into effectively the same thing as an interest rate increase by the Fed. Either tends to slow the U.S. economy.
Commensurate with this high in the dollar is a record high in consumer confidence. Unquestionably the U.S. Dollar is supported by high real U.S. interest rates. The U.S. Dollar is now fairly valued. And the U.S. Dollar Index has rallied into key 98-100 resistance. Commensurate with the weakness in the yen are weakening commercial property values in Japan. Something has to give. We are seeing an inflationary spurt in the U.S. in the midst of a global deflation... The Australian Dollar remains a safe-haven currency.
Monitor the Canadian Dollar for a possible buying low. The trading public is too bearish on the Japanese Yen, German D-mark, Swiss Franc and Canadian Dollar, and too bullish on the U.S. Dollar.
RECOMMENDATION--Futures investor's may purchase June Swiss Franc on a strong close above .70 with a .684 open protective stop, holding for a test of .75. Futures investors may sell June U.S. Dollar Index short on a stop at 96, 95 and 94 with 97.1 open protective stop, holding for a test of 88-92. Futures investors may purchase June Canadian Dollar on a strong close above .722 with .7145 open protective stop, holding for a test of .74. Futures investors may purchase June Japanese Yen on a stop at .8022 with a .789 open protective stop, holding for a test of .83-.85. Futures investors may purchase June British Pound on a strong close above 1.63 with 1.614 open protective stops, holding for a test of 1.68-1.70.
R.E. McMaster, Jr.
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