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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