Saturday, April 28, 2007

Mexico raises rates 25bp unexpectedly.

Mexico yesterday raised interest rates 25bp in a move that surprised the markets. This occurred after some very good inflation numbers which came out on Wednesday. In the statement it was sited that ``Central bank directors consider it desirable to reinforce monetary policy in a preventive manner,'' the bank said in its statement. Out of 16 economist polled before the announcement ALL 16 said that the CB would keep rates at 7.00%. I along with most of the rest of the market was looking for the rate to stay unchanged.

As I have written about in the past I am not good at predicting where a market will run to but rather I stay with a position until it no longer feels good. This position NO LONGER FEELS GOOD. I began exiting as soon as prices appeared in the market. I am currently at just under 50% of my original position and I will be out of the balance (hopefully) by close of buisness Monday. This is a "Sea Change". They claim to be "preemptive" but do they know something we do not? I have rarely in all my years of trading seen a change in interest rate policy followed a reversal at the next meeting. At best rates stay at this level, more likely another rate increase is in the cards for Q3 of this year. At times like this i like to cut most to all of my existing positions. Take a fresh look. Am I missing something? I am not overly concerned by the loss incurred on Friday (although sizable), as this was a totally unexpected move. They happen, you lose money, and you move on. But now where from here. I think it is best to get a "fresh" look at the markets and as such I began cutting whatever positions I could.

The only positions I am left with are:

Long Usd/Korea
Long Usd/China
Short 50% of original position in Mexico rates (I will be exiting on Monday)
Short Usd/Argy
Short Argy Rates (If I get the opportunity I will exit the spot risk in this)

That is it. Small stuff, small 01 risk. Hopefully I get a chance to exit all my position's on Monday at reasonable levels. The markets may be changing "Stagflation" in the States ?? Maybe. I want to be on the sidelines to reasses.

Good Luck and Good Forex Trading.

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Tuesday, April 24, 2007

Buying Euro's

I just went long Euro's at 1.3623. I am looking for the break to new highs with an eventual test of 1.4000. Weak numbers and general apathy about the markets will support this view I think.

Good Luck and Good Forex Trading.


Monday, April 23, 2007

China spreads widen but currency weakens.

With all the talk of an over heating economy in China and the need for the currency to appreciate all I see is opportunity for the contrarian in this currency pair.

For the last few months (4-7 months) I have been watching this currency pair and have been sitting long dollars. With the widening of the spreads (as interest rates in China have continued higher) the currency has not strengthened accordingly. Actually it has strongly lagged. I see no change in this pace for the near term and as such I remain long dollars. The spreads can widen all they want but if the currency does not appriciate accordingly there is tremendous opportunity to be long dollars. Even if the pace increases it has to outpace the spread before you start to lose money. The more cautious amongst us can use this (at the very least) as a funding currency.

As for the Euro. It looks to me like we are in a mini retrace before we make a move to all time new highs (before testing 1.4000 ??). I am currently square this currency pair, but will be looking to get long again shortly. I will keep you posted.

Good Luck and Good Trading.


Wednesday, April 18, 2007

Emerbing Markets continue to grind along.

It is becoming clear to me that the market does not expect a change in rates in the U.S. for a minimum of 3-4 months. Interest rate futures trade in a range, the dollar continues to weaken and high yielders continue to gain ground.

Today there was some definite complaining coming from the Eastern European block. In Hungary the CB warned that a strong currency was not in the country's best interest and in Czech Republic the CB warned of interest rate rises. I have not turned my back on these trades (long EM currencies) but I am definitly on my toes. Alot of talk cannot be good, because where there is smoke there is fire. I am maintaning my positions for now but will not sit through to much pain as these markets have come a long way.

I also cut my long Euro/Usd position this morning. The market closed basically at my cut level. We have very little economic information till next week and I think that there may be some profit taking as the weeks comes to a close.

Good Luck and Good Forex trading.


Tuesday, April 17, 2007

More Economic numbers and more confusion

CPI +.6%
Housing Starts 1518
Building Pewrmits 1544
Industrial Production -.2%
Cap U 81.4

All these numbers (except for Industrial Production) are pretty good (and even IP was not to bad).

Couple this with the Fed's view on inflation (to high) and any rate cuts are out of the picture for the next 3-4 months. Emerging Market currencies are acting pretty well. Zar,Isk,Try,Brl are all gaining ground on a fairly regular basis. Fixed income prices similarlly are reacting very well. It looks to me that staying the course is the correct trade for now.

Good Luck and Good Forex Trading.


Monday, April 16, 2007

Brazil looking to join Bank of the South...

The Brazilian Finance Minister announced that Brazil was looking to join the Bank of the South. This has initially not been taken very well by the market. The first BMF contract which closed at 2.0250 on Friday, has opened at 2.0380/90 this morning. Clearly "Jumping into bed" with Chavez is not a very good thing. It seems Brazil is looking to hedge its bets. With oil prices high (in my opinion heading higher)it would seem that Chavez will remain "a player" in the months/years to come. I think this weakness will be short lived, although I do think weak shorts will exit. I am short dollars and will remain that way for now.

Good Luck and Good Forex trading.


Sunday, April 15, 2007

Major Storm hits the east coast...

So today a major storm is due to hit the Eastern Coast. The news stations are warning people to take in what is likely to get swept away in the wind storm. As I write this the rain is steady, but no wind or "down pour". So are the weather forecasters being overly cautious? Or is this good advise? To me it seems like good advise. Why take unnecessary risks. The few minutes it take to bring in a table and chairs off your deck is well worth the piece of mind that is you get, if (when) the winds pick up. I remember many years ago vacationing down on the New Jersey shore. A major hurricane was predicted to hit the coast(the first one I remember). My mother packed us up (myself and my three brothers) and moved us inland to wait out the storm at a friends house. Well actually we only moved two blocks inland, still on the water, but the intent was there. Looking back she was just being overly cautious, but I think that is better then waiting till it is to late to react.

Similarly you should look ahead when you are trading. Take the current market as an example. For regular readers you know that I have had similar trades on for months. Long Emerging Market currencies, long the Euro and short rates in Mexico, Brazil and Argentina. These positions, for the most part, have proved to be profitable. But is there something out there which is warning of a problem in the future. Stagflation, I think this is a real risk to the economy. In my opinion oil prices are here to stay, and will grind higher in the years to come. India, China and other EM countries are constantly increasing the level of consummation and this trend looks like it will only increase in the future. The U.S. Economy is certainly a mixed bag at the moment. Employment numbers look strong, Inflation numbers look high, but all other indicators seem to be on the decline. Not a good situation. I am maintaining my postions, But an going to be on the alert for a sea change. I also will not add to position for the time being.

Good Luck and Good Forex Trading.


Friday, April 13, 2007

PPI at 8.30 am New York Time

U.S. Numbers out today (Expected)

Trade Balance -60.0B
PPI +.7%
Ex Food and Energy .2%
U. of Michigan Confidence 87.5

Let's see what happens here as Inflation is clearly the concern of the Fed. The dollar continues to weaken against the Euro and I think no matter what happens you need to be long for a medium term view. 1.4000 is not out of the question at all, and I think the market will "Gun" for it in the coming months.

Good Luck and Good Forex Trading.


Thursday, April 12, 2007

Slightly Nervous Markets

Are the Markets nervous or just tired. After days of rallying in the Emerging Markets, stocks, bonds and currencies the market has retraced a bit today. Speaking with friends in the market we came to a conclusion that "It feels nervous but it is really going no where". The big dollar is clearly under pressure, and it should be. The numbers today point to Stagflation (higher prices with less jobs), and with the Fed still nervous about Inflation do not look for them to bail out this market anytime soon. Most economist are now looking for rate cuts after the summer (I think August). Number one trade is be long Euro. Still riding curves in Mexico (added yesterday and under water), Brazil and Argentina. Small short dollars in all also.

Anyone with an opinion on this market that I am missing please let me know.

Good Luck and Good Forex Trading.


Wednesday, April 11, 2007

Markets continue to move along

The markets for the past few days has been extremely slow. Positive carry trades are certainly looking good but are we approaching levels to get out? Mexican rates are very flat 10 year yield at 7.90% while o/n is at 7.45% (2year at 7.58%!). Although I still have the flattening trade on I am not going to add to it until I feel that the Mexican Central Bank is looking to cut rates. This is not the case right now. A similar story is also occuring in Argentina. This trade has preformed very well for me. I have been short dollrs both spot and forward for months now. The curve has flattened tremendously and spot has drifted lower. I still think there is value further out along the curve (the 2 year sector) but I would be running any short dollar postion against a long dollar postion in the 2-3 month area (while keeping tiny short dollars spot only 20-25% of my normal NOP).

Shortly we will be getting the minutes from the latest FOMC meeting. I expect that they will be slightly more hawkish then previously thought so I am looking for dollar futures to suffer while the dollar might do slightly better. We will see in a few hours.

Good Luck and Good Forex trading.


Monday, April 09, 2007

Opening Day at Shea!

I will be there today in the cold April weather. Look for me behind first base, I will wave !


Friday, April 06, 2007

Strong U.S. Employment Number

A Strong U.S. Employment number came out today posting 180,000 new jobs against an expected 130,000 (mean). This caused the dollar and equities to rally (stocks were closed but the futures market showed strong gains) and interest rates to rise as this number clearly took the market by surprise. Earlier in the week it was surprising to me the wide variations of predictions on this number. Anywhere from 70,000 to 240,000. I for one was expecting the lower end of the range as I have been anticipating a slowing U.S. economy. This number now throws my thoughts into question. Again lets keep things in perspective. U.S. rates are on hold. Probably for a little longer then previously thought. The next move, up or down, is now clearly unsure.

This number, although a surprise, will not change some of my "Bigger picture" views.

If it is good for the U.S. it is good for Emerging Markets. Continue to be long EM currencies. Brazil, Mexico and Asian currencies are a good start. The MAS (Singapore's Central Bank) has orchestrated a gradual strengthening of its currency and this should continue. The same is true for Korea and India. The currencies to short in this region is Taiwan and China. The market seems to be building in a quicker appreciation of the currency then I think will occur while Taiwan has been used as a funding currency and I do not think that will change.

Interest rates in Brazil will continue to come down. In Argentina there is a nice curve. I suggest "Riding" this curve. Under 3 months is trading at a discount to dollars and the 2 year sector is around 9%. This is a good trade I believe.

The Euro, I have been preaching to be long this currency. It has been a good trade for me so far and I think over the medium term it will continue to be so. But (you knew that was coming didn't you?) I think under the current circumstances it would be best to cut down on your positions. I am still long but just 25% of my usual position size. I will allow some time for the market to digest this number and reassess the middle of next week.

Remember economies are like ocean liner's they do not turn on a dime. Also at the end of any cycle you will have conflicting signals. These ups and downs of the current U.S. numbers could be signally just that.

Good Luck and Good Forex Trading.....

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Thursday, April 05, 2007

Stay long the Euro

I must admit I have found it difficult lately to come up with new things to say about the markets. I have had similar positions on (in varying sizes) for the last 2-3 months. Today the Euro popped pretty good and with U.S. Employment out tomorrow I think that no matter what the number (within reason of course) we are looking at a weaker dollars in the coming weeks. The market is currently looking for excuses to sell dollars and will find it somewhere.

So in quiet markets embrace Yield and ride the wave.

Good Luck and Good Forex trading.

Go Met's !


Wednesday, April 04, 2007

Iran and the U.S.

There is an article out in an Kuwait City newspaper saying that the "U.S. is planning to attack Iran's Nuclear reactors and other nuclear facilities by the end of this month".

The sourses cited were anonymous and it was stated that the planning has already begun. Although I think that President Bush would love to bomb Iran I do not think he will go near it. It would be political suicide for the Republican party and would seem a place situation that the President would steer clear of.

On the Economic front numbers out of Europe were on the stronger side leading the Euro higher and Interest rates to edge higher. This follows my thinking that the Euro should strengthen against the dollar. Even if rates do not go up (as I believe is the case) U.S. rates should outpace the rest of the world lower. Otherwise I see no reason to change my positive carry views. We should not see any real movement till the middle of next week as a large number of dealers seem to be off. Even with U.S. Employment number out on friday I see little movement unless the number is drastically off from what was expected.

Good Luck and Good Forex trading....

Met's win another 2-0....I am thinking an undefeated season......What do you think??


Tuesday, April 03, 2007

Day two of a quiet week.

As I posted yesterday, I think we are in for a quiet week. The dollar is little changed. U.S. interest rate futures slightly lower and Emerging Markets are all abit stronger. Remember my Triad Theory, Market move three ways...Up....Down ....or stay the same. If you can put a position on that two out of three make money then it drastically increases your chances of making money. This is the case during weeks like this. Slow, quiet markets. Little information out to change direction. A positive carry trade can really pay dividends. This is how I trade. For my personel account (dividend paying stocks....) and when on the job.

Now on to more important things....The MET'S.

1-0 so far, Glavine looked great the other night, and the defense.... WOW!. Tonight the ageless wonder El Duque is on the mound. I am abit concerned by the pitching staff as it is abit old (Glavin, El Duque) and unproven (Maine, Perez, Pelfrey)but with the bat's that we have we should be in it till the end.

Good Luck and Good Forex Trading.....and Go Met's !


Monday, April 02, 2007

Quiet week ahead.....

I would seem to me that we are in store for a quiet week. Tonight at sundown we have the start of Passover, with today and tommorrow being the most relgouis days and at the end of the week (into next week) we have the Easter holiday.

Today we have a few small numbers ISM (expected 51.1) and Prices Pais (58.5) and on Friday the big number Employment. I will be sticking with the few positive carry trades that I have had for a while (rates play in Brazil, Mexico and Argentina), while looking to reduce my long usd/sgd trade as that has been grinding against me for abit to long.

Good Luck and Good Forex Trading.