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.




Post a Comment

Subscribe to Post Comments [Atom]

<< Home