Friday, February 23, 2007

Volitilty declining

There is an interesting article on the Bloomberg website this morning. Lower volatility in the Treasury markets has led to less firms (CIBC being the latest)being "primary dealers". This is because with less volatility you need to do much bigger size transactions to generate similar income. Being in a Dealing room all day I still here "old School" sales people talking about Vol being to low. When I hear that I cannot say YOUR'S fast enough. Although I have been around a while, I feel that I am capable of seeing the markets of today as being very different. As I said in a previous post a market friend of mine refers to me (and other holder's of the carry trade) as "Yield Monkeys". Well yes very true, but I hold this belief in the opinion that rates globally are on a collision course. Why? Because Emerging Markets such as Korea, Brazil, China etc etc etc are developing fixed income markets. As such there is actual depth and structure to the yield curve. Also information is much more readily available. I can remember back during the Asian crisis of 1998. Many times (and I repeat MANY) I would be paid in a forward Asian currency well above the going rate. By this I mean being paid 1 mth Singapore at 20% when 2 months was being offered at 5% (Seriously!). Why, because the other players in the market didn't understand what was going on and were afraid of running a gap. This does not happen (well at least not to that extent) today.

I truly believe that the U.S. market still leds the way for the rest of the world. As such if we are quiet (look at the Fed Fund contract's, no rate change till August!) then the rest of the world should be in a similar situation.

The markets have changed. Embrace it. Does that mean we will not get a "flush out", of course not. But it important to see the markets as they are and not as they were or more importantly as you want them to be.

These are the FX Trading (Macro) Ideas for today.

Good Luck and Good Forex trading.


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