Chart Presentation: Currency Musings

June 3 (Bloomberg) — The dollar rose to a two-week high against the euro and increased versus the yen as Federal Reserve Chairman Ben S. Bernanke said the central bank is “attentive” to the implications of the U.S. currency’s decline… The Fed is working with the Treasury to “carefully monitor developments in foreign exchange markets” and is aware of the effect of the dollar’s decline on inflation and price expectations, he said.

In a sense the Fed has put the markets on notice that the Treasury it getting ready to intervene on behalf of the dollar. The last time this happened was August of 1995. On a couple of occasions in past issues we pointed out that the Treasury waited until the Japanese yen returned to its break out point in 1995 before wading in to buy dollars so this time around it could take the Swiss franc falling below .90 before the real fireworks begin.

The commodity trend is the mirror image of the trend for the U.S. dollar. In some ways the rise in the Cdn dollar reminds us of the large cap U.S. equity markets rally that ran from 1994 into 2000. Below we show the SPX and the Canadian dollar futures with accompanying Fibonacci retracement lines. The point is once the CAD breaks lower it could mark the start of a negative trend that could carry it below .8000 by late next year.

The second chart below compares the stock price of General Motors (GM) with copper futures from late 1993 through most of 1999.

The stock prices of the U.S. auto makers bottomed in 1981 at the peak for energy prices but through the second half of the 1990’s the turn began once copper prices had reached a peak. The chart shows that GM’s stock price reached bottom around the end of 1994 just in front of the cycle peak for copper early in 1995.

The argument is that copper prices tend to trend with BRIC growth with BRIC representing Brazil, Russia, India, and China. We would also include countries such as Indonesia, Singapore, Thailand, Malaysia, and the Philippines.

When copper prices turned lower during 1995 it marked the start of a trend that favored the major industrialized nations. Over time capital began to flow away from the BRIC markets leading into the Asian crisis in late 1998 along with a currency-related crisis in Brazil and a default by Russia.

The offset to declining BRIC growth and falling copper prices was a steady rise in the share prices of the U.S. auto makers. GM bottomed with the peak in copper prices in 1995 and peaked with the bottom for copper prices in 1999.

We show GM and copper futures for the current time frame at bottom right. GM hit bottom in the spring of 2006 just in front of the peak for copper prices and has since returned to make new lows this year as commodity prices in general raged to new highs.

Our problem with GM is that we can’t imagine buying their product. That could change, however, over the next few years and we admit to being somewhat fascinated by the prospect of the lithium battery-powered Chevy Volt in the 2010 model year. The lithium batteries- we understand- will be provided by Hitachi (HIT) so we have included a chart of HIT below. This is a rather nice chart that would be helped immensely by an upside break out above 80 one of these days.