Indonesia, Ireland, Portugal Are Leading Indicators?

Think back to last year at this time ... Wow! What a difference a year makes, indeed. This morning, the S&P 500 is knocking on the door of 1400 again and the NASDAQ is a whisper from crossing over the 3,000 line, again. Last year, the market was diving and the darkest of the dark doomsayers were predicting the DOW would drop to a 1,000. Sure, we still hear those same voices crying out that doom is coming, but the market, as it did last year, is ignoring their unfounded "theories." Soon after the bleak words of the oracles faded into the mist last August, the market rallied to a strong year-end finish.

My guess is the market will follow the same path this year, but I do wonder what is sparking the move of last Friday and the follow through today. Earnings have been so-so, manufacturing is flat, China is turning up slowly, and Europe is still unsettled. Is it the jobs report on Friday that is the catalyst? Maybe, it is the perception that things are not as bad as portrayed. Maybe ...

Southeast Asia's largest economy, Indonesia, provided relief as its economic growth surprisingly picked up in the second quarter of this year to underscore its resilience to the global slowdown.

Indonesia, relatively speaking, is not a big player in the global economy, but it is a player, and for whatever reason it is showing some cyclical strength. With a GDP of just less than a trillion dollars and a debt to GDP ratio of less than 25%, Indonesia speaks to economic emergence, true, but it also speaks to the economic influence of larger Asia. Market players should pay attention to Indonesia's voice as it speaks to opportunity and it possibly foreshadows the larger Asia re-emerging sooner rather than later.

China's central bank on Sunday pledged to intensify monetary policy fine-tuning and improve credit policy to bolster the world's second largest economy.

Dare I suggest another group of potential economies that could be foreshadowing economic re-emergence not in Asia, but in Europe? The limb is thin beneath me, but I find it irresistible.

Struggling southern European countries are becoming more competitive in their main export markets helped by the weakening euro, according to a monthly European Central Bank study of movements in consumer prices in the euro zone and economies it trades with.

I am not prepared to suggest the positive change in exports for the weakest of the weak in Europe is a definitive sign that Europe is turning up in its cycle, but I am prepared to say that, like Indonesia, these countries are showing movement in the right direction and that is a change from the movement we have seen. Ergo, a weakening euro is a good thing, despite the negative presentation in the breathless media. Again, Europe, like Indonesia, is a potential opportunity, as it won't stay down forever. This thought is a perfect segue to a reader's question ...

What is your six-month "vision" for the EUR/USD pair? Where is the pair going?

Given that a weak euro is actually good for Europe at this time, and given the US is seemingly moving out from its economic soft path, my vision is the current status will hold. For six months? I don't know, but what I do know is the ECB has influence over the strength or weakness of the euro, and right now, the central bank is ready "to do whatever it takes" to save the euro currency. Paradoxically, having it fall could actually help to save it.

Trade in the day; Invest in your life ...

Trader Ed


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