Brazil and the Rest of Latin America
Brazil
The Copom minutes were out yesterday and they reinforced the perception of a neutral policy stance for the rest of 2009. The committee viewed inflation as “benign” and that growth, although better then in other countries in the region, will be sluggish at best. The currency has been very stable as commodity prices has slide to offset the positive tone being reflected from the U.S. Stock market. Today the currency strengthened as rates remain unchanged. The Dollar in general has continued to be under extreme pressure and I continue to look for 1.4350 against the Euro in the next few sessions. For Brazil I will be continuing to trade it from the Dollar short side. It is clearly the trend and only trading above 1.8710-30 area (a close above there) would make me reconsider. It is a tight “stop” so to speak but in these markets (slow, low volume/liquidity) I see no reason to “get married” to a trade. From a rates perspective I see very little happening in all of Latin America. Every country has stated that they are on hold, adopting a wait and see approach.
Trades
1 Short Dollars against Argentina
2 Short Euro against Dollar (T/P 1.4200 S/L 1.4275) I am looking for a bigger move higher into next week.
3 B&S Mexico forwards. Steepening curve at higher levels.
Good Luck and Good Forex Trading
IMF Says Euro is Overvalued
This is a story from Market News. The Euro has been under some pressure the last few sessions and now this. I will sit on the side lines with a small short position and see how things play out.
BRUSSELS (MNI) - The eurozone’s single currency is overvalued by as much as 15% relative to the economic fundamentals, the International Monetary Fund said in a report issued on Thursday.
The Fund also reiterated its view that monetary policy in the euro area should remain accommodative to ward off disinflationary pressures and the small risk of deflation.
It said if there is any room for the European Central Bank to cut interest rates further, it should be done as soon as possible. And it added that if risks to the recovery grow, the ECB may need to implement additional unconventional measures to help make sure interest rates stay low.
The “staff assessment is that the euro is somewhat on the strong side relative to its fundamentals,” the IMF report said. “Based on the exchange rate developments from February 25 to March 25, the Consultative Group on Exchange Rate Issues estimates the euro’s overvaluation in a range of 0%-15%.”
Foreign exchange rates have been subject to increased volatility since the onset of the financial crisis. Last year the euro hit record highs against the US dollar but has since retraced much of those gains and has also weakened compared to the UK pound.
“The high volatility of the nominal effective rate of the euro since the beginning of this year reflect the high uncertainty in the foreign exchange markets as a result of the crisis,” the IMF report said.
The IMF predicted that the euro/dollar exchange rate would average
1.38 in 2009, down from 1.47 in 2008.
It reiterated that eurozone monetary policy will need to remain “supportive” to ward off the risk of deflation. The European Central Bank has slashed interest rates to 1% and has implemented several special liquidity measures to support the eurozone economy, which is currently in recession, and support prices.
“Headline inflation is likely to stay very low and a small deflation risk remains present, despite strong nominal rigidities. Thus, it will be essential to maintain the accommodative monetary stance as long as disinflationary pressures persist, by keeping interest rates low through the unlimited provision of term funding at fixed rates,” the IMF said.
It said that the possibility of further cuts in the ECB policy rate needs “to be weighed against their possible adverse impact on the functioning of money markets, but any potential margin for further reductions ought to be utilized as soon as possible.”
And, the Fund added, “if downside risks were to intensify, a more forceful signal to keep interest rates low would be necessary. To deal with contingencies, all unconventional options, including active credit easing, will need to remain under consideration.”
The IMF noted that it differs with the European Central Bank about the risk of deflation in the euro area.
“The ECB viewed the risks to the inflation outlook as broadly balanced, while the [IMF] staff saw a small risk of sustained deflation,” the report said.
It said its staff thought large output gaps and growing unemployment would eventually increase downward pressure on prices and that economic activity could deteriorate more than expected, increasing the downside risks.
“The ECB representatives argued, however, that a number of factors mitigate deflation risks,” the report observed. It added that the ECB thought sticky wages and prices in the services sector would put upward pressure on prices.
“To counter potential deflationary pressures, the ECB will need to continue to consider all its options…Intensification of deflationary risks may well require the ECB to utilize further unconventional measures, but these measures should continue to be designed to allow for a nondistortive exit,” the Fund said.
The IMF currently predicts that gross domestic product in the eurozone will fall 4.8% this year and 0.3% next year, after rising 0.8% in 2008.
But it warns that the “recovery is likely to be slow and subject to considerable risks.”
“The decline in activity should moderate through the remainder of
2009 and give way to a modest recovery starting in the first half of 2010. Ongoing deleveraging, corporate restructuring, and rising unemployment will weigh on domestic demand,” the report said.
Good Luck and Good Forex Trading……
What to Do……
The markets have been a bit of a zero lately. Not Stocks, currency’s and rates. Overall we have continued to see a weaker dollar but the move has been a slow grind at best. I am looking for more of the same unfortunately. Emerging Market rates seem to have, at least temporarily, have bottomed. Mexico, Chile, Colombia and Brazil have all said the rates for now are on hold. Sure we will have some ups and downs but over the next 6-9mths I expect very little change from where rates are right now.
I do expect the Dollar to continue to weaken. I think this move will be slow with sudden retracements but again I think it will be lower at the end of the year.
Trades
Although I think the Dollar will be lower in 6 months for tonight i am long Dollars. I am looking for us to approach 1.4100 against the Euro. I will cut my Dollar long at around this level.
I am short Dollars against Argentina looking to capture the yield.
Good Luck and Good Forex Trading.
Traders vs Risk Managers…..
I think this is a true story!
Trader vs Risk Manager
Five Traders and Five Risk Managers are travelling to go to a conference. Each Risk Manager goes to the machine to buy a ticket each, whilst the five Traders only buy 1 between the five of them.
Just before the ticket inspector arrives the five Traders lock themselves in the bathroom…when the inspector sees the locked door he knocks and shouts “tickets please!”…
at that point the Trader with the ticket slips it under the door. The inspector, satisfied that he has seen the ticket moves on…
The Risk Managers are really angry! On the way back the five Risk Managers buy only one ticket, whilst the Trades buy none. As they board the train the Risk Managers immediately lock themselves in the bathroom.
Seeing this happen the Trader runs up to the door, knocks and shouts “tickets please!”…at which moment the Risk Managers slip the ticket under the door.
The Trader takes the ticket and goes off…
The Moral of the story: Risk Managers always try to apply the Trader’s methods without ever understanding them…
Good Luck and Good Forex Trading…..
CIT, and solutions
As my mother always told me, when you need something done do not tell someone how to do it, rather tell them the problem and let them figure out the solution. You will be surprised by the answers. Now we look at CIT. Last week they were looking for more TARP money to get them out of trouble. When the Government said no (thank goodness) it became clear they needed to find a new solution….and they did.
CLICK HERE to read the full story on AOL.COM
Good Luck and Good Forex Trading.
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