Some of the best trade’s are the one’s never made…
So earlier this week I wrote that upon returning to work this week I would be re-emtering the EM market’s. Well I am happy to say that I luckily did not do so. Why, well I think it had alot to do with the over riding feeling of nervousness that was previlent in my office and in conversations with other trader’s.
It seems to me that the best way to approach these markets is with extreme caution. Do not look for “home run’s” and to trade from a (I cannot believe I am going to say this) negative carry prospective. Until the Fed cut’s the Fed Funds rate (and I think it will happen sooner rather then later) you should be long dollars. After the cut then short the dollar. These markets are difficult but there is plenty of opportunity. I am currently pretty sq in my interest rate positions and looking to “scalp” a few points here and there in spot. Not my usual style but these type of markets are not usually very friendly to me.
Market talk….
Local South African’s seen in buying Usd/Zar.
Large Funds selling Aud and Aud crosses.
Opinions
Mexican central bank desperatly wants to raise rates to combate inflation but will not (cannot) until this sub-prime mess dies down.
Watch inflation (especially in the food component of EM countries) this is the first place it hit’s. It starts here and moves on from there. This will be the death spiral for the markets.
Good Luck and Good Forex trading…
Some of the best trade’s are the one’s never made…
So earlier this week I wrote that upon returning to work this week I would be re-emtering the EM market’s. Well I am happy to say that I luckily did not do so. Why, well I think it had alot to do with the over riding feeling of nervousness that was previlent in my office and in conversations with other trader’s.
It seems to me that the best way to approach these markets is with extreme caution. Do not look for “home run’s” and to trade from a (I cannot believe I am going to say this) negative carry prospective. Until the Fed cut’s the Fed Funds rate (and I think it will happen sooner rather then later) you should be long dollars. After the cut then short the dollar. These markets are difficult but there is plenty of opportunity. I am currently pretty sq in my interest rate positions and looking to “scalp” a few points here and there in spot. Not my usual style but these type of markets are not usually very friendly to me.
Market talk….
Local South African’s seen in buying Usd/Zar.
Large Funds selling Aud and Aud crosses.
Opinions
Mexican central bank desperatly wants to raise rates to combate inflation but will not (cannot) until this sub-prime mess dies down.
Watch inflation (especially in the food component of EM countries) this is the first place it hit’s. It starts here and moves on from there. This will be the death spiral for the markets.
Good Luck and Good Forex trading…
Sunshine needed….
A couple of weeks at the beach and barly a tan line to show for it. Back to work on Monday and hopefully the markets have calmed abit. Really haven’t looked at much since I left, BUT I think I will be selling dollars against EM……(it is hard to teach old dogs new tricks!!)
Good Luck and Good Forex Trading….
The Fed Respones (Finally)
The Fed came to the rescue today cutting theDiscount Rate 50bp to 5.75%. The markets have taken this news very well with stocks reversing early loses and piling on gains. It is VERY important for the markets to hold these gains today. I must admit I am not sure they can do it. Banker has been on vacation all week (and next week also) and has been watching the markets with only one eye. Although the devistation seems alot less when you do not look at the screens all day, the nervousness that I view on the TV (CNBC etc etc) is real. This cut in rates is important, it shows that the Fed is
1. Taking the current situation very seriously
and more importantly
2. Taking the lead in the financial markets by being the first CB to officially cut rates.
I think the markets needed that. Time will tell of course but for now I think (and hope and pray) we may have pacified the markets at least short term. Financial stocks are very bid this morning and look for Wells Fargo to lead the way higher after some very bullish talk from Jim Cramer last night.
Good Luck and Good Forex trading. I am off to the beach to work on my tan.
Dollar benifits from the turmoil
The dollar has benefited from the turmoil in the market in recent weeks. The reasons I see for this are:
1. Uncertainty in the market and traders run to the U.S. dollar for safety.
2. Selling of more risky assets (carry trades) and placing the money in safe U.S. Treasuries. Even with all the volatility if you hold the Treasury till maturity you will have all of your principal.
3. The view that this sub prime issue will lead to a slow down in the U.S. economy and therefore a decrease in the deficit which would lead to a stronger dollar.
4. Lower U.S. rates (see yesterday’s post) which would decrease the interest rate differential resulting in dollars being more attractive.
Take your pick as to why, but for now it is happening. I am not sure how long it will last and still suspect that by year end the dollar will be at its weakest point of the year, but only time will tell.
Good Luck and Good Forex Trading.
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