Tuesday, September 02, 2008

Gustav causing less damage then anticipated

Hurricane Gustav is not as strong as previously expected and as such should cause considerable less damage. As such Crude prices have tumbled, off $4.00 a barrel, as crude suppliers should be up and running again sooner rather then later. This has been good news for the dollar as it is almost 1 big figure higher against the Euro (1.4600) and almost 2 big figures against Sterling (1.8020). The dollar is clearly in a bull market, not so much on the strength of the U.S. economy, but rather on the weakness of the other countries.

A few thoughts on Latin America.

Usd/Clp. This currency pair has been heading lower of late as inflation expectation have increased and it looks like the Central Bank will be raising rates in the near future. The overall trand thought remains up in my opinion so I think you should be looking for opportunites to but Usd/Clp

Usd/Cop. This currecny pair has been heading higher. Considerable higher over the last week or so. Yesterday stocks were up big as the Central Bank lifted restrictions on foreign investment in the local equity market.

The Finance Ministry said today it would lift requirements that foreign investors must deposit 50 percent of their stock investments in the central bank for six months or pay a fine. Colombia imposed requirements on investments entering the country in May 2007 and toughened the rules a year later in an attempt to halt a surge in its currency.

I think this is an opportunity to short Usd/Cop once again.

Usd/Ars. The currency refuses to move but yields are considerable lower. I will not short dollars at these levels and currently stand long a few (although still looking for a flattening curve to try to offset the yield loss). I will look to sell dollars if yields approach 18-19% or buy them (heavily) if the shorter end approaches parity with Dollars.

Usd/Brl. Rates in this country have been coming off (no idea why) but I think it is wrong and remain slightly B+S currency against Dollars. No strong feelings here but I perfer to be cautiously long dollars, spot, but only for short periods of time due to yield.

Usd/Mxn. The currency is struggling based on no further rate rises plus crude coming off hard. I do not have much of a position here but my gut tells me to be ready to fade this move in the coming days/weeks.


Who was I wrong on the Short Jpy/Krw trade mentioned last week. Korea has suffered alot as the local economy is really struggling.

South Korea's won weakened below 1,100 a dollar for the first time in almost four years and stocks slumped, prompting the finance ministry to say it will take steps to support the year's worst performing currency.

Even these statements were not enought to support the currency....YET....but I have accepted that I am wrong (at least near term) and will now reasses.

Good Luck and Good Currency Trading.

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