Friday, October 31, 2008

Is the worst behind us?

Today was another rather calm day for the markets. Libor rates continued to come down, stock markets rallied, Emerging Market currencies strengthened and interest rates continued to fall. Sitting back one might think that everything is good and it is "Safe to enter the water again".

Mexico. I like recieving positons in rates, specifically Mexico and Brazil. Today Mexican rates came off hard, primarily in the back end of the curve. This caused the curve to flatten as the shorter end was unchanged. I have been seeing alot of customers buying Mexican CD's as the implied rates offshore are considerably higher then the onshore rates. I will be watching short dates for more direction on the curve, if they stay around these levels then the curve will steepen out again, but I am leaning toward short end rates coming lower (as the currency strengthens) and a further flattening of the curve ensues.

Brazil. Interest Rates went higher today in a move that I can only clarify as strange. I think these were weak shorts getting squeezed out and I think that they will begin to move lower in the days to come. The currency is being effected by numerous flows. It seems the Central Bank is doing all it can to keep it from running away. There have been many newspaper articles written about the trouble of local corporates who speculated on a stronger Real only to have severe mark to market issues of late. The CB are well aware of this and doing everything in their power to provide ample liquidity to the market. Tommorrow is the fixing of the Nov BMF contract. The roll has gone exceptionally bid and I think it could be paid up by banks trying to accumulate dollars in an effort to "close out" these corporates. This is pure speculation. As such I think there is a good chance we see sub 2.00 in the next two days, after that I have no idea.

Euro. I think that the Euro reached a temporary top (1.3100 ish) and will begin to move lower testing 1.2500 by the end of next week. The market still needs dollars and I think this will be the catalist to move the Euro lower.

Good Luck and Good Currency Trading.

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