Latin America.....

This region has been under extreme pressure of late led by Colombia which has suffered from a slowing economy and its close relationship with the U.S. Credit situation. I expect this currency to remain under pressure as uncertainty about the outcome of the bailout begins to surface.

Argentina. Although the Argentinian economy expanded at a faster pace then was expected, adjusted for seasonal factors is was not quite as good. Looking forward a lower industrial production in August should weigh heavy on growth in future reports. I think you can see that in the currency which closed at its weakest level (3.1150) in months. Along the curve the market continues to look for offers suggesting that further weakening is in its future.

Brazil. Some interesting developments are surfacing in this country. The currency which has strengthened for years has reversed course over the last few months and has weakened at a fast pace. This should have been expected once viewed against the U.S. credit situation. I think however that the rapid fashion of this weakening caught a few locals by surprise. I know of many local corporate who had strengthening trades on their books and with these latest moves have severe mark to market issues and therefore margin calls. As I have written about before the local market has been scrambling for dollars. This scramble has resulted in local dollar rates topping 6%. If faced with further weakening in the Real, I could see these corporates being forced to close out their contracts. That means a higher Usd/Brl, and higher rates. The liquidity is quite thin and it could make for a tricky situation.

Mexico. This economy is slowing in a substantial way. I see no way they raise rates. Currently the market is building in a cut of 25bp at there next meeting (I think Oct 16). Although I do not see it happening in Oct, I see a further the market continuing to look for this move. A narrowing of differential between USD and Mexican rates lies ahead.

As for trades I am looking for:

Eur/Usd to move lower.
Gbp/Usd to move lower. I do not have this on but I think there is real opportunity here. The U.K. economy is highly exposed to mortgages and I cannot see them escaping this global meltdown.
Usd/Brl to move higher.
Usd/Ars to move slightly higher. I think that high interest rates in Argentina will prevent to big of a move higher.

Lets hope the 700 billion USD Bailout goes well.


Good Luck and Good Currency Trading.