Saturday, March 17, 2007

The Storm has arrived.....

Well, as I said in my last post a storm was about to hit the East Coast and it has. Judging from my Kitchen window we received about 6-8 inches of Icy snow. My back hurts already. Is this the last storm for the year? I certainly hope so, remember I am supposed to head to Delaware next weekend for my son's Baseball tournament.

I guess this is how I have been thinking about the markets also, Is the storm over? Or more importantly hoping that the storm is over! For the past few weeks I feel like I have been trading from under my desk. Not really looking at the screens, just hoping things will go my way.Is it, well based on Fridays close, Stocks down moderately, Interest Rate futures grinding higher, and Emerging Market currencies closing on the weaker end of the range I am not sure. I always like to use a sleep test on my positions and currently although I am sleeping OK, I have little confidence that the positions that I have on will yield substantial profits. So what is a trader to do? I am beginning to think I should substantially cut down on my Interest Rate plays in EM. Cut back on my Mexico rates (meeting this Friday no change expected), play the curve in Argentina (small o/r risk) and small short rates in Brazil. This way I can look at other markets where I will have a chance to make some money. Where you say?

Lets start with the Euro. I feel that the U.S. is entering (if not already in it) a period of slowing growth. This should lead to the Dollar being under some pressure. Although this currency does not provide positive carry, I think being long may be the way to go here. I will however do some research on Monday and look for a way to put on a negative dollar positive carry trade.

U.S. Rates. If I am correct with my assessment of the U.S. economy the rates in the States should come lower. This has already started but more should be in the works. I am looking for a rate cut around August. This being said it may be better to express this view through a cross, say Euro/Usd. Rates in the Eurozone have not come off at the same speed as in the States. This trend should continue as Eurozone growth continues to outperform the U.S. Another reason I like this play is the guy who sits next to me at work has this basic trade on and has been making money on it all year. Remember you do not have to reinvent the wheel!!

Now it is time for my broken record trade. Iceland. On Thursday the countries Credit Rating was downgraded by Moody's in a move that took the market by surprise. The reason suggested was that current account defiect widened to a record level. The Krona moved from (appr) 67.20 to the dollar up to 68.00 to the dollar. I know a lot of weak shorts exited on this news. On Friday morning it was back at 67.20. But I stand by my opinion that this will (and has been this year already) a big winner by the end of the year. Although I always preach yield I think that you must be selective, have deep pockets (keep positions small enough to withstand a storm) and be patient. I know easier said then done.

Hang in there, enjoy the Snow (in the North East),NCAA tournament, and the weekend.

Good Luck and Good Forex Trading.




Anonymous Caravaggio said...

Just as I was reading this post, it started snowing over here in the UK, and we're expecting more snow tomorrow. Strange weather patterns are abound.

9:30 AM  

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