Thursday, December 28, 2006

Asia in Vogue

Asian currencies have been very very bid of late. I have been trying to develop some trading themes for the coming year and it certainly looks to me like more of the same is in order. I know that is the easy way out as for right now I do not have any sizable positions (lower Mexican rates being the largest) but it seems to me there is no reason to fight the trend. U.S. rates should continue to be range bound with the next move (dare I say) up.... No I actually do not think we will see any change for the next 6 months (minimum), and there is really no way to know wgich direction they will go as it all depends on the numbers (but they are looking stronger for now).

Yield baskets have worked very well for the past two years and I definitly like them into next year. I will be writing more on this, in detail, in the coming weeks. I still have Iceland on my radar, but do not feel it is the right time to jump into the water. When I do I will post, but I think we are 3-6 months (at least ) away from that. Turkey, same story. When rates are well into double digits as both of these countries are, oppotunites will be present at some point. So as my Scout master used to tell me....BE PREPARED.

Good Luck to all......


Wednesday, December 27, 2006

Emerging Markets backing up abit....

Emerging Market currencies are weakening abit this morning as it looks like many dealers are away and looking to cut back on risk as the turn of the year approaches. I am doing my best to stay out of any positions as I think these thin markets can only cause trouble.


Friday, December 22, 2006

Happy Holidays...

Wednesday, December 20, 2006

Euro Continues range bound

I cut my long Euro position at 1.3205. Currently I am sitting flat as I expect the markets to be more illiquid as the days progress toward the New Year. Overall I would not be surpried to see a weaker dollar, and if you must trade (and why must anyone trade) I would attack it from the short dollar side.


Tuesday, December 19, 2006

Thailand Restrictions...Continued.

Today the Finance Minister stated:

"Thailand excludes equities investments from the Baht measure"

I am not so sure this is going to make the situation any better. From what I am hearing this new statement was made in response to the Equity markets getting hit hard overnight. Also I am hearing that the Military (remember there was a Coup in Sept)ordered this new measure. All this news certainly does not make me (if I were an investor) comfortable. I would think that any bounce in the equity or bond market will be met with selling from forgeign investor's.

For the "big dollar" I am currently long Euro/Usd at 1.3158. I will leave a stop below 1.3120. It feels to me that the market is looking for any and all opportunites to sell dollars.


Monday, December 18, 2006

Thailand Restrictions

The Central bank of Thialian annonced a new round of restrictions to stop the apprciation of the Baht. Basically they are trying to eliminate short term speculation on the currency. The restrictions are as follows:

1. 30% of all foreign inflows into Thailand will (from Tuesday) have to be
placed unremunerated with the BoT.

2. If the funds are withdrawn within 1 year then 10% of the total investment
will be kept by the BoT as a penalty

3. This is effectively a tax for all investments by foreigners if withdrawn
within one year made much worse by the dead weight loss of only being able to
`use' 70% of the invested money

4. Trade and tourism flows are excempt. FDI flows will be allowed to use the
30% once the correct documentation is provided

This is certainly a negative for investment into the counrty. It has had a slight spillover effect in the Region. Korea,Taiwan,Singapore and the rest of the region have all weakened against the dollar. I think people are underestimating this situation. I will keep you posted.


Friday, December 15, 2006

Dollar slightly stronger...

The dollar this morning is opening slightly atronger, after fininhing yeasterday trending in the same direction. As I have been saying I do not think this is anything to be getting to excitied about, rather just part of the drifting the market will do going into year end. Unfortunatly even any economic number will have limited impact as risk areversion seems to be the order of the day. If you do not have a strong view.....Do not trade.


Thursday, December 14, 2006

Recession...What Recession ??

Today I played hooky from work to get a little Holiday shopping done. I got up early and headed to the Mall and to my surprise I found the parking lot abit crowded. Well not a little actually alot. Inside I waited at every shop, counter and checkout line to be helped. I thought by going at 9.30am on a Thursday morning (I know it is Dec 14 ...But for me this is early), 11 days before Christmas I would be ok. A few people here and there but overall relativly a pleasant shopping experience, if there is such a thing.

I certainly think this is a good thing for everyone. If people are out shopping, they are spending money. They are therefore probably employed and have some disposable income. All in all a good thing. But now couple that with the extremely warm weather we are having (at least on the East coast, today was close to 60 degrees)and the large quantites of crude I have been hearing about from some friends in the oil industry and I think the economy may bounce back in the first quarter of 2007. Remember the Fed seems to be leaning that way (Retails sales up 1% yesterday) and they should have at least as good information as anyone.

Just a thought.....


China, making all the right moves

China's currency the Yuan, has risen to a new high against the U.S. dollar today. This as U.S. Treasury Secretary Henry Paulson continued to encourage the nation to relax currency controls and clamp down on piracy to help close the trade gap. For years the Yuan had been a fixed currency against the dollar and as such gave the country an unfair advantage with trade. This because the Yuan was considered undervaled and as such made Chinese made goods less expensive on the open market. Congress has been after the President to impose tariff's to equal the playing field. So far the President has held off on doing this (along with congress agreeing to the wait and see approach)and been using behind the scenes effords to pressure China to let the Yuan strengthen. Currenctly it seems to be working, based on the last few months of the Yuan's movements. Now lets see if this will actually help (in a meaningfull way)the manufacturers here in the States.


Wednesday, December 13, 2006

Bonus time.....

Record profits on Wall Street are being reported for producing a 20% increase in bonuses being paid. As widely reported Goldman Sachs profits were up 93% in the latest quarter. They have earned as much per share in 2006 as in the previous two years combined. It has been reported that the bank is planning on rewarding its employees with 16.5 billion (yes I said BILLION) dollars in compensation this year. That is an average of $632,000 per employee. Clearly the money will be distributed from top to bottom but that is certainly a lot of money. This type of story always gets me thinking. When is enough, enough? Now don’t get me wrong I enjoy a good payday like the next guy, and part of the reason traders get up early everyday is for the paycheck at the end of the month, but it would seem to me that there is more to all this then just money. And I think I am starting to get it. The magic word is POWER. At a certain point you have enough money. You have a nice house, car. The kid’s education fund is nicely funded. The ex-wife has stopped asking for more and the girlfriend is set up in a beautiful apartment that even she cannot find any fault with. And still you get up everyday and go to the office. Sure you like the guys in the office. The jokes, one liners, and sharp humor, but is there a time to hang it up even if you are young. I recently came across an ex college who was on his way overseas for “6 months”. I asked him about his family and he said they were staying behind. I thought that to be quite strange. Why leave your family for 6 months (I am actually bid 2years) when you have more money then you will ever need (he began the conversation by telling me that bonuses don’t mean anything anymore because all he does is put the money in the bank). I posed this question to him and his response was that he was getting really good exposure with the top executives in the organization. Now maybe I am a little jealous that he took his chance, and I never did (ok a lot jealous) but I am not sure I would leave my family for the exposure. To rise to the top of most organizations I think it is important to, for lack of a better term, put the hours in. But I think I will follow the advise of a friend of mine when I told him Lotto was 16mio dollars, he said “That’s 15 more then I need”. Interesting huh?


Stay out of the waters.....

I am expecting a quiet day (and tomorrow also) as few economic numbers, and even fewer of any significance should keep the dollar little changed. I am still on the sidelines waiting for a stronger conviction before entering the markets. Patience is very important in these type of markets as I find that with lack of conviction comes uncertainty in my positions and I tend to stop myself out my frequently. Basically throwing money away just so that "I am in the market". For now I am not.

I will still be looking to

Sell 1.3340-50
Stop and go long at 1.3370


Tuesday, December 12, 2006

A few last thoughts on the FOMC

Upon further reading of the comments the Fed feels that,

"Economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market. Although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters"

On Inflation,

The Fed believes that core inflation is likely to moderate but it is still elevated and that is why they have maintained thier tightening bias.

Although the vast majority of market participants are looking for slowing growth over the coming months, the Fed is clearly not in the state of mind. A look at how the market reacted, weaker dollar and a higher bond market reflects that at this time the market feels that the Fed is not correct. Only time will tell.


U.S. Rates unchanged

The Federal Reserve as expected left rates unchanged today. This was widely expected. Lacker continued to dessent from the group being the lone person to vote for an increase (25bp). The headlines were as follows

Economy reflects substantial cooling in housing market
Core inflation has elevated
Economy likely to expand at moderate pace
Reduced impetus from energy prices
High resource use may sustain inflation pressure

I think it is clear that the Fed is still very concerned about inflation, and that they firmly believe that the Economy will pick up by the first quarter of next year. The dealers that I am talking to in the market do not see this, but the Fed certainly does. Do they know something that we do not or are they just out of touch?



FOMC today

The Fed will be be meeting today to discuss interest rates. The overwhelming consensus is for no change (5.25%). I expect a pretty quiet day, as the market looks for the comments following the announcement for further direction. I currently do not have and major currency positions but will be looking to sell Euro 1.3340/50 and stop out and go long on a break of 1.3370.

Foreign Exchange

Monday, December 11, 2006

Dollar weakens, Thanks to Greenspan

For all those who thought that Mr. Greenspan was no longer an influence on the market I give you today’s price action. The dollar traded stronger overnight and although the markets were very quiet continued to slowly gain momentum. Although I never expected a large move today, I was surprised to see the sudden reversal and significant (for a day trader) dollar weakness. It seems that Mr. Greenspan stated that he felt the dollar would "Drift downward" for the near future and that "It's imprudent to hold everything in one currency. The sharp reversal clearly shows the markets preference to sell dollars and I think it is wise to listen. Dollar bulls should hold off for now (I might try to sell Euro just below the high and stop out just above 1.3370 (is)). There will be plenty of time to buy dollars when the market really turns.

One trade I always like to initiate is a break to a new high or low. So if we do take out 1.3370 I will get long. Look for updates as we get closer.

Now on to Latin America. The following are headlines off

Mexico 10 Year Peso bonds yields drop to record low on Inflation outlook.
Brazil Real gains against dollar as economists lower Inflation forecast.
Colombian government Peso bonds gain on expectation of lower budget deficit.
Creditor’s revenge: Argentine Bond warrants triple after record default.

Allot of good news in Latin America. This trade has been a pretty consistent theme of mine for the past two years, stronger currencies and lower rates in Latin America, specifically Mexico and Brazil. I feel that rates globally are on a pace to converge. These as more and more Emerging countries begin to open up there financial markets and further develop their debt instruments. I frequently put on what I refer to as yield trades (sell low yielding currencies....while buying higher yielding currencies..Dollar neutral). All with in a specific region (i.e. Latin America, Asia or Eastern Europe).This is a very common strategy of hedge funds. I will go into more detail in a future column.



Quiet Start

There has been a very quiet start to this mornings activity. The Euro is basically unchanged from Fridays close. Some comments this morning by Quaden:

ECB thinks excessive volatility in FX markets is not desirable

No need for countries to panic on FX or interest rates

Euro relatively high and the dollar relatively weak but not in uncharted waters.

These comments do not do to much for my thinking but I will continue with a slightly negative approach to the currency pair near term (with very tight stops). I think that the market is still very long Euros (or more accurately very short dollars), so I think the market is susceptible to a selloff. All this being said I am certainly not very excited about the markets at this time. I will be cautious trading only small positions.


Sunday, December 10, 2006

Thoughts on Trading

Let’s be real…..Trading is not as easy as it is made to seem on those infomercials. Buying when you have three green lights may or may not work, but in my experience it is rarely that simple. There are many different styles of trading and it is important that everyone find the style that works best for them. I remember many years ago reading the book Market Wizards by Jack D. Schwager. In it he interviews James Rodger’s. Mr. Rodgers explains upfront that he does not consider himself a Trader but rather an investor as he typically holds trades for years at a time, and he says “I never get in at the right time”. Being a young trader at the time I found this quite strange. How could a highly regarded and successful trader like Mr. Rodgers consistently enter markets at the wrong time and hold trades for years at a time! To say I was skeptical is an understatement. I did not believe that anyone could hold positions for an extended period of time. I was a “scalper” and believed that everyone made money the same way (certainly everyone around me did just that). These thoughts changed a few years later when while sitting in a weekly strategy session a coworker commented that I had said the same thing about my positions for the last 6 months (upon further review it was really 18mths). I had a similar interest rate and spot position (varying degrees depending on my confidence level) but always the same direction. My thoughts went back to reading Market Wizards. Clearly I had evolved in the markets (although subconsciously) and never planned to do so. That is not to say that no one makes money “scalping” the markets anymore. It is just that I found a style that suited my personality better. The most important thing to me is to always keep your self in the “Game”. You cannot be profitable if you can no longer participate in the market. As a friend of mine once said, it is not the smartest guy at the poker table that wins but rather the guy with the deepest pocket. Keep your position size to a level that when the market moves against you (and it will) that you can ride out the storm in anticipation of it coming back. Remember these are styles which have worked for me and everyone is different. But evolving in the markets are an important part of success.

Thoughts? Coments?


Friday, December 08, 2006

Euro wild range

The Euro has had a crazy day and has allowed me an opprotunity to exit my short Euor position. After touching a high of 1.3364 the Euro came off hard touching a low of 1.3190 while allowing me to buy my position back at 1.3200. Better lucky then good.


Employment slightly stronger then expected.

The U.S. Employment number for Nov 2006 came in at 4.5% as expected. The Non Farm payroll came in at 132K against an expected 100K with revisions from previous months there was a modestly stronger number then the market expected. The dollar initially went better bid on the news as Hedge Funds were seen entering the market, but these players were quickly stopped out as the dollar reversed course and is not resting at the bottom of the days range. I am not sure what to make of this dollar move other then to say that NO ONE seems to want to hold dollars. I am still short my Euro's and will exit on a break of 1.3370.


U.S. Employment today

The U.S. will be reporting its November 2006 employment statistics today at 8.30am est. The rate as reported by Bloomberg is expected to be 4.05% with non farm payrolls (the key number) expected at 100k. I believe that a neutral to strong number will provide strength to the dollar. Only and absolutly terrible number will continue dollar weakness. As I have written previously them market seems to me to be very short dollars. An excuse to take profit or cut a position before vacations will be jumped upon.

Barroso says Euro FX rate not especially overvalued in historical terms *RTRS*

I will update after the number


Thursday, December 07, 2006

25 BP as expected

The ECB raised interest rates 25 bp to 3.5% as expected today. Also Trichet was quite hawkish on the future of interest rates in the region. The ECB was unanimous in todays rate decision.
Trichet was adament that price stability was tops on his list. That they were constantly alert to inflation risks. All in all I would be looking for more rate rises into next year.

Other Rate announcements today

U.K. No change (.0%)
South Africa +50bp (9.0%)


ECB Rate hike expected.

The ECB is unamimously expected to raise rates today to 3.5% from 3.25%. The move has been well flagged by the ECB Governing council and as a result the market should focus on Trichet's comments afterward. These I would expect to be on the hawkish side leaving the door open for further rate raises throughout 2007. This widening interest rate differential between the States and Europe will further pressure the dollar in the coming months. The Euro is little changed overnight as the market waits on the announcements.


Wednesday, December 06, 2006

New Zealand keeps rates steady

New Zealand todat held rates steady at 7.25 but said that there was a better chance that the CB would raise rates in 2007 because the country's economy has not slowed as forcast.

``There is an increased chance that some further increase in interest rates may be required to ensure that inflation pressures abate,'' Governor Alan Bollard said in a statement released in Wellington today. ``Economic activity has been stronger than expected.'' The currency rose slightly in response to this news.

Rates have not moved in New Zealand since Dec 2005 but all the while "Hawkish" talk has keep a strong interest in owning the New Zealand currency. Only Iceland (ISK) has higher rates among nations with the top ratings at Moody's Investor service.

As regular readers to this column know I am a big fan of owning high yielding currencies. Iceland is certainly on my radar screen although I am not sure now is the correct time to buy it. As for Kiwi you might try buying that agianst say, the Euro which I feel is slightly extended. This trade would be for those traders who do not like being long dollars outrite.


Something has got to give.

The markets the last few weeks have been confusing for me.

Bonds up, Stocks up, Dollar down !

Economic numbers have clearly been on the weaker side, with little to no signs of inflation (except from "Fed Speak"). Where does this leave us. Well from basic economics it should mean Stocks lower, Bond yields higher and the dollar under some pressure. So then why are stocks remaining bid. I think they be trying to tell us something and as such I am starting to think the following.

1. The market is very short of Dollars (against all currencies)
2. The market is totally discounting inflation (this I agree with)
3. The market believes growth is slowing...alot.

On the third point I do believe that the economy is slowing but I also think that we are one strong to moderate employment number away from a large retracement. This could take place this month (Friday Dec 8) or in January, or both. With everyone positioned similarlly and this being December (Vacations and thin liquidity) this move could be very erratic. Overall I believe that the dollar should remain weak and the economy slower, but stocks may have some (substancial) room to the downside.

As for my Euro short, I am seeing the high as 1.3320 exactly where I said to leave a stop. So on this one it looks like I placed the stop in the wrong place.

I still like it lower and I have resold at 1.3315 this time however I will leave my stop above the high at 1.3370


Remain short Euro

As I wrote last night....I like the Euro lower throughout today. It seems as if it may be in a retrace mode to gain strngth for a possible move higher at a later time, but for now I think the downside has more potential. Numbers out of Germany last night were SLIGHTLY weaker then expected (Factory orders -1.1% against expected +1.1%) so this could be the excuse the market is looking for. I will move my stop down to 1.3320 (entry point) as no need to lose money on this trade as it is against the trend.


Tuesday, December 05, 2006

Trade of the Day...

Sell Euro ag Usd at 1.3320 (current Market)

Stop 1.3360 ( above the High)

T/P 1.3200.....

Trending markets through the holidays

I have observed that markets trend from Thanksgiving through year end. I am not exactly sure why but possible less people being envolved in the markets due to vacations and traders closing out thier positions would seem to be a possible answer. If you believe in this "Theory" then look for continued weakness in the dollar across the board and U.S. rates to drift lower. I was initially correct on the dollar. But instead of trading the markets I let the markets trade me (a terrible mistake that even veteran traders make). I never however expected the strength coming out of Asia. With the U.S. economy in a weakening trend, it was my opinion that Asia would suffer (them being exporters ...see yesterdays post). So far this is not the case. For now I will continue to look for lower rates in Mexico and Brazil and currency strength across all os central and Latin America. Although I feel that the dollar will continue to weaken against Europe I will stay out of those markets as I have been wrong recently. Remember when trading it is not always the smartest person who makes money but rather the person with the deepest pockets (not the most money). Being able to cut your losses and live to fight another day is very very important.

Comments or Questions.......


Monday, December 04, 2006

U.S. Economy Slowing....

Recent numbers are clearly signaling a slowdown in the U.S. economy. This is being reflected in the Dollar which is under tremendous pressure against just about every other currency. Bernanke and many other Fed officials have been out talking tough about fighting inflation but I believe that this is all just that TALK. Rates are clearly on hold for now. Although the Fed may be trying to sound like the next move is up, I believe they are trying to so vigilence on inflation (very important). I cannot see rates going up in the currenct environment. Unchanged...Yes. I think we are looking at unchanged rates for the next 4ish months. This is one of the reasons that I believe that the dollar has been under so much pressure of late. With our rates being unchanged and European rates set to rise the interest rate differential continues to swing away from the dollar's favour. As anyone who reads this column reguarly knows I am a big fan of positive carry trades. A few things do puzzle me though.

Why haven't stocks come off (Doesn't a slowing economy translate into lower profits for Corporations?)?
Why is the dollar so weak against Asia (Shouldn't thier economies suffer as they are big exporters and we are big importers?)?

Any Comments or Answers would be greatly apprciated.