The Weekend Financial Review
The stock market has developed a downtrending channel after setting a relative high set back on May 2nd. This pattern suggests a move to 1307 on the S&P, although I believe the momentum to the downside should increase rapidly and the channel is likely to fail by a more aggressive bear move over the next couple of weeks. The outlook on the global economy is finally starting to catch up with what I have been discussing for months – the recession’s bailout-induced pause is over and the global economy is in real trouble. Look past Greece and other European nations. Look beyond the Japanese disaster. Early monetary tightening will make the world cringe, and the reversal in those monetary policies will not only destroy investor confidence but will launch the U.S. dollar back into a bull market. The Fed may not have made all the right moves, but not following the bandwagon by raising rates will likely be viewed as a brilliant contrarian move. Bonds remain bullish amid a stock market decline and flight to quality. The dollar should see choppy price action until we break 80 on the index, afterwhich the long term bull trend will be reestablished. The pound, euro, Canadian and Aussie dollars are all bear plays. I would not chase the dollar higher, but remain long term bullish. The yen should see some gains with the BoJ holding steady on rates, indicating the post tsunami rate cuts are over and the economy is stabilizing. The Japanese yen remains a buy regardless of the dollar’s next move and I continue to standby my forecast that:
The Japanese Yen futures will hit 140 before 80 or I will quit writing the Weekend Commodities Review…forever.
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