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Currency Currents

Fri, Apr 6 2007, 10:33 GMT
by Jack Crooks

Black Swan Capital

Key News
• The U.S. may file a complaint at the World Trade Organization as early as next week over what it calls China's piracy of copyrighted movies and books, according to four people briefed by the Bush administration. (Bloomberg)
• An investment agency that is expected to manage part of China's foreign exchange reserves will probably reduce its holdings of dollar assets only gradually, a government economist said Thursday. (The Standard)
• Key Reports Due (WSJ):
8:30a.m. March Nonfarm Payrolls. Expected: +142K. Previous: +97K.
8:30a.m. March Unemployment Rate. Expected: Unch. Previous: 4.5%.
9:40a.m. Mar ECRI Inflation Gauge. Previous: 118.7.
10:00a.m. Feb Wholesale Trade. Previous: +0.7%.
3:00p.m. Feb Consumer Credit. Expected: +$4.5B. Previous: +$6.4B.

Quotable

“The fact that general prices were more or less stable during the 1920s told most economists that there was no inflationary threat, and therefore the events of the Great Depression caught them completely unaware.”

   Murray Rothbard

FX Trading – Breakout or fake out?

Yesterday, everyone was watching the 13411 level in EURUSD; they are probably still.  We got a breakout above there yesterday—which technically suggests to some a new high in EURUSD may be very close at hand.  But that’s the worrying part of the trade—it seems everyone is thinking the same way. 

It’s not always bad being ensconced within the consensus, as we know they are right in the middle and wrong at the ends.  But for a natural skeptic, as we plead terminally guilty, when it’s recognized you are so ensconced its uncomfortable.  It’s like the adage, after 15-minutes at the poker table, and you haven’t identified the patsy, it’s probably you.  Sadly, the fact is, we are always part of the consensus just by participating in the game.  And that small part we play skews our objectivity, no matter how hard we try to remain “open” to new information. 

Today, maybe we get some new information in the form of U.S. non-farm payrolls that hints whether we are somewhere near the middle, or end of this euro move against the dollar?  But then again, in this market, we increasingly endorse the view of Woody Dorsey who says the “fundamentals” are nothing more than “transient investment themes.”  Is it any wonder why most of us have all become such short-term price-led creatures in forex?  Maybe stepping back, using wider stops and wider targets is the answer…but then again, maybe we skip one or two themes in the process, only to be captive to others…hmmm…  It’s not an easy game we play. If you think it’s easy, I’d like to invite you to a poker game. 

The currency pack traded in a very tight range overnight.  The economics seem to favor euro, no doubt.  But it seems traders continue to be weary about the surprising staying power of the U.S. consumer.  That weariness could easily evaporate if the job market deteriorates. 

So that’s the game.  Strap on your rally hats, or crash helmets, depending on your perspective.  The checkered flag will be waved at 8:30 a.m. EST. 

EURUSD Daily:
 

Take care and enjoy your weekend.

Jack Crooks

• Breakout or fake out? 6 Apr 07

Published on  Fri, Apr 6 2007, 10:33 GMT