Latin American Emerging Markets…plus a little G7

Two countries remain in focus at this time as the Brazilian Real sold off for the third day in a row to end the weak at 2.1080 after president Lula’s party had demanded that the central bank make changes to its monetary and currency policies, according to a statement posted on the party's Web site yesterday. ``A new monetary and exchange rate policy by the central bank is a necessary condition for the sustained growth of the Brazilian economy,'' the statement said. The party’s statement does not necessarily reflect the president’s view. The government also feels that interest rates are not being cut fast enough.
Mexico
Goldman Sach’s Mexican economist has put off his rate cut prediction by one quarter as a result of the inflation situation in Mexico at the moment. ``Given the bank's language, we believe that right now is not the appropriate time to be talking about rate cuts,'' Leme said in a phone interview from Miami. ``Basically, we're putting off our rate cut expectations by one quarter”. The central bank is predicting that inflation will fall to between 3.5-4.0% in the first half of the year. Down from 4-4.5% currently. The target for inflation from the central bank is 2-4%.
As many readers already know I am short dollars against both of these currencies and looking for interest rate cuts (or at least unchanged in the case of Mexico) in both countries. Based on the current economic numbers I think I am on track although the talk coming out of Brazil on the Real is a bit concerning. I will closely monitor this position but bottom line to me is if interest rates continue to come off the market will need to buy Real’s to purchase fixed income products.
I received a lot of the information for this entry from Bloomberg.com
As for the G7 it seems that little was said about the Yen and Carry trades in general, although I bet it will be on everyone’s radar screen going forward. The Central Bankers talked a bit about leverage but again didn’t seem all that concerned. They noted that “The funds more than tripled since the Federal Reserve organized a bailout of Long Term Capital Management LP in 1998 to prevent billions of losses rippling through Wall Street”, but that the Amaranth melt down caused little disruption to the market. Seems to me that there will be no regulation of Hedge funds is in the immediate future.

These are the FX Trading Ideas for today.
Good Luck and Good Forex Trading
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