Talking about currency unions, well there is a new one coming. Yesterday, the Kuwaiti finance minister, Mustapha al-Shamali, announced after a two-day meeting of the Gulf Cooperation Council (GCC) that agreement for a Gulf Arab monetary union had been enacted.
The GCC will now define a calendar for the institution of a central bank before reaching the objective of a common currency. No doubt, this is an important landmark in a process that has been underway since 2001.
On the same occasion, the Kuwait Foreign Minister Sheikh Mohammad al-Salem al-Sabah has informed parliament that “Issuing the Gulf currency… will take a long time and could reach up to 10 years.” Oman and, more importantly, the United Arab Emirates (UAE) are not part, yet, of the coming Gulf monetary union.
However, al-Shamali expressed hopes that the two countries would rejoin the union in the near future, a development, he said, that “would strengthen the economies of the region and turn it into an economic bloc that would be taken into consideration globally.”
One of the reasons the UAE didn’t join was the Gulf council decision to locate the monetary union’s central bank in Riyadh, Saudi Arabia. Now, for Abu Dhabi to consider joining, Saudi Arabia would have to offer dispensation to its neighbor on a number of important issues and not least, positions on the joint monetary council.
For now, these subjects are clearly not on the table. Yet, even if they were, there are still Dubai’s current financial woes, with Moody’s also placing four UAE banks on review for a possible downgrade yesterday that put the UAE in a weak position, at least for now. In the meantime, we can say that all the dollar pegs of the region remain firmly in place.
On currencies I would like to say that the Euro closing below its November low of 1.4632 signals a serious downturn. The weekly bars in the second chart suggest that the Euro's "intermediate" trend may also be rolling over as well. It shows the Euro now having closed below its 10-week average for the first time since last March.
Its 14-week Relative Strength Index (RSI) line turned down from overbought territory from over 70. In addition, the weekly MACD lines have also turned negative for the first time since last December.
Euro weakness means automatic dollar strength. Investors should not overlook the fact that most of the commodity and stock rally since March has been built largely on euro strength and dollar weakness.
We’ve already seen profit taking in commodity markets because of the dollar rally. The bigger question is whether a stronger dollar will also stall the global stock market rally. One of the factors driving the dollar further higher and the euro lower should be stronger economic news in the United States combined with not so strong numbers out of Europe, for now at least. We’ve also seen U.S. interest rates moving higher, which is also dollar-friendly.
In the U.S. stock markets at yesterday’s close, there was no change in the short- and medium-term uptrends for the S&P 500 ETF (SPY). Today is Fed announcement day and we could see the direction of the S&P500 established after 3 p.m. holding for a few days.
Yesterday, the ETF SPY closed above 111 for three days in a row and has been up three of the last four days. However, charts show little change from open to close and rather tight high-low ranges.
In fact, Monday’s percentage high-low range was the lowest of the year. Bollinger Band Width is also trading at its lowest level of the year.
No doubt, this is a dull market and the bears should remember never to short a dull market. The medium- and short-term trends remain up. Also, seasonality still favors the bulls over the next couple of weeks.
More Posts by Hans Parisis
© 2017 Newsmax. All rights reserved.