Sunday, September 03, 2006

Slow and Steady

Friday's numbers were clearly taken by the market in stride, and why not they were just about what was expected and inflation seems to have crested. I am pretty firmly in the camp of the FED looking for any excuse to hold tight with Monetary policy. These number allow them to do just that. Now of course the inflation number that will be coming out over the next week or so can change all that, but the last time I checked gas prices had dipped below 3.00 dollars a gallon and there are more "Back to school sales" then I can count. Therefore I am going to attack the market from a carry perspective. Any trade that I like, that provides positive carry I will put on. Currently I am:

Long Usd/Jpy
Short Usd/Brl
Short Usd/Mxn.

I also have interest rate plays where I am looking for rates to remain steady to lower in Brazil and Mexico. Last week the Central Bank of Brazil cut rates 50bp. Most of the market was looking for 25bp. This signals to me that there are more cuts to come (2 25bp cuts before end of the year). Looking at what is built into the curve we have more room for rates to go lower. This week can be slightly eratic as dealers will be returning from vacations and may want to jump back into the market so be carefull. But I think if you trade looking at the next 2-4 month senerio the above trades should work out.



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