Monday, September 22, 2008

Another tiring Session.

A few random thoughts from today's session.

Mexico. On Friday the Central Bank left rates unchanged at 8.25%. This was a widely expected result. The key points to the statement on Friday was that they were very concerned with the development in the U.S. The 700bn package should help, but I am afraid on near term. I think this currency pair is headed toward 11.0000 over the coming months.

Brazil. Fundamentally things are ok, but since August foreign investors have been reducing their bias on currency appreciation. Currently foreign institutional investors have switched to a long dollar view. This is consistent with my view also.
The central bank certainly wants any moves to be orderly and as such should intervene if a weakening currency gets out of hand. The CB entered the market on Friday to ease the dollar FRA market. It was effective, but once again for how long?
I am looking for Usd/Brl to move toward 2.0000 in the coming weeks.

Colombia.The Central Bank has been in buying 20 mio usd per day for the last few months. This may seem small when compared to the daily volume in Colombia but it has definitely had an effect. I think this is a major reason for the turn around in the currency and I look for it to continue in coming sessions. With the weaker peso the administration was able to lift capital controls on equity portfolios. The lifting of restrictions has had little effect on the currency (another negative). Granted the currency is 35% weaker then four months ago, but for now is comfortably below 2,200. I think we are heading higher and will be taking this level(2,200) out. As such it would not surprise me to see the CB in selling dollars to smoth the ride.

The "Big Dollar". The Dollar has reversed course and weakened tremendously over recent sessions. This makes some sense to me. This rescue plan should be terrible for the Dollar and inflation. Also continued risk aversion makes the Dollar vulnerable. I do not see us see us making new lows (but then again anything is possible), but rather a steady grind (swift grind)lower.

Crude was up at 130 per barrel at one point today, short date liquidity is very thin. All in all very nervous markets.

Good Luck and Good Currency Trading.



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