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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