Sunday, August 21, 2005

The dollar back on track……..

The dollar has been in the midst of a comeback after bearish sentiment in the previous few weeks failed to allow the greenback to break out of its recent ranges. This bounce back to the high end of the range has cooled expectations from the hedge fund community that the dollar was set to weaken further due to structural weaknesses in the U.S. economy. With crude trading at the high end of its range and calls for it to edge higher in coming weeks (Goldman, Merrill, and JPMorgan all raised their expectations for prices), Asian currencies will continue to be pressured, as well as the Euro. Asia and Europe being large importers of crude will suffer from the inflation as well as growth effects of the higher crude costs. These effects will clearly benefit the Dollar as the Fed will continue to raise rates (to offset the inflation effects of higher crude) and the U.S. economy should slow less then in counterparts in Asia and Europe.

Friday, August 19, 2005

Oil continues to climb…

Between lack of investment in exploration and production, as well as increased demand form developing countries (India/China), oil prices should continue to rise over the near term. This continued rise in prices could translate in slower worldwide growth. A German newspaper reported that the IMF sees these record high oil prices becoming a bigger risk to global growth. “All in all, the dangers have become greater”. The fund in an upcoming report cited a lack of refining capacity as a big reason for the higher prices. A slowing U.S. economy (currently one of the few economies growing significantly) would have drastic effects on world growth, which would translate into a realignment of the dollar. Asian currencies would come under pressure (we have seen the beginning of this already) and interest rates would come off.

Friday, August 12, 2005

Emerging Markets take a big hit

Emerging Markets got hit hard overnight which has been the continuing trend of the last week or so. I have cut down on my risk considerable as the volitility and liquidity will limit the ability to control risk. It looks to me the dealers are taking risk of. Squaring up existing EM positions as the dollar looks vunerable and the yield difference between dollars has narrowed (and should continue to narrow).

I am off for the next 3 weeks (I willl update when I am near a computer) so good luck to all.


Thursday, August 11, 2005

Q3 U.S. Growth looking strong

Recent data has pointed to close to 5% growth for the U.S. economy. Retail sales (out this morning) are expected at 2.1% up from 1.7% last month. All this coupled with the hawkish statements by the Fed earlier this week continues to point toward higher U.S. rates.

But does this point to a higher dollar ? I am not sure of that one at this time. I am currently cautiously short dollars against the Euro and GBP. Hedge funds have definitly turned more negative on the dollar in recent weeks and it would not surprise me for us to hit 1.28 in the euro before making new lows.

Dollar Asia is a trickier animal. With oil at record highs is would point to a weaker Asia against the usd. This has not been the case. I am watching dollar Yen carfully a break below 110.00 (currently 110.40) and I will sell dollars looking for 108.00 quickly.


Wednesday, August 10, 2005

Asia Strengthens.....

Asian currencies have strengthened across the board led by Usd/Jpy. The big story here is Prime Minister Koizumi has followed through on his promise to dissolve the lower house and call a snap election following the failure of the upper house to approve his privatising the post office system. Also hearing calls from the Hedge Fund community that it is time to start buying Asian equities. This should lend support to Asian currencies (clearly it did last night).

In Brazil the central bank once again cancelled it auction (did not buy dollars). Also hearing (for the first time ever) that hedge funds are looking to buy Brazilian equities. In the past this has always been a bond/currency play.


Tuesday, August 09, 2005

Numbers improving in the U.K.

Trade numbers came out improved in June to 4.28Billion Gbp from 4.98Billion Gbp in the prior month. This number was better then the consensus. This turn was driven by trade gains against Japan, China and the U.S. This could be a sign that the U.S. deficiet due out on Friday could be worse then expected. Overall headlines seem to be more supportive of Gbp.

Asia. With crude making new highs everyday I am do not like owning Asian currencies. This coupled with my feeling that the dollar could come under near term pressure has me long Euro/Jpy.

The Fed raised rates once again today (3.50%Fed Funds). They also signaled that the "measured pace" was still the way they would proceed.


Friday, August 05, 2005

Stronger Employment number in the U.S.

Payrolls jumped by 207K in July vs expected 180k. This coupled with upward revisions for the prior month show the the economy continues to grow with little inflation. This is good news anyway you look at it.

That being said I think that the dollar will trade heavy against the Euro. It seems that at least for now the market wants to buy the Euro. Do not fight it. I am currently long looking to test 1.24 but will cut on a move below 1.23.

Stay short Usd/Brl and Usd/Mxn. Also look for the differencial between U.S. and U.K. rates to continue to come in. I currently hold those positions also.


Thursday, August 04, 2005

Bank of England cuts rates

The Bank of England cut rates today (as expected) by 25 basis points. The U.K. economy grew by the weakest pace in the past 12 years in the second quarter. This coupled with the Terrorist attacks prompted the move. I see more cuts ahead. The ECB also has a rate announcement but no change is expected there.


Monday, August 01, 2005

Dollar under slight pressure....

The dollar starts the week under slight pressure as the market awaits the ISM number this morning. Sterling rose to a two week high against the dollar (1.7670) but with a rates cut expected on Thursday the upside seems limited to me. The Kiwi has grinded higher (from .6790 to current .6850) since its rate announcement last week. The Central Bank was clearly more bearish then expected and that has given support to the currency.

I remain a dollar bull and I am currently looking for a new area to buy dollars.