FXstreet.com

0

0

Currency Currents

Tue, Oct 7 2008, 13:49 GMT

Black Swan Capital


Key News
• Australia's central bank cut its benchmark interest rate by one percentage point. (Bloomberg)

US Economic Events (WSJ):
7:45a.m. ICSC Chain Store Sales Index For Oct 4: Previous: -0.2%.
8:55a.m. Redbook Retail Sales Index For Oct 4: Previous: -1.3%.
2:15p.m. Sep 16 FOMC Minutes
3:00p.m. Aug Consumer Credit: Expected: +$6B. Previous: +$4.6B.
5:00p.m. ABC/Wash Post Consumer Conf For Oct 4: Previous: -41.


Quotable
“Why are markets turbulent?  I am a scientist, not a philosopher; so I can only hazard some suggestions.  One possible source is the world outside markets—what economist call exogenous effects.  After I had, in the early 1960s, focused on scaling and long-term dependence, key traits of turbulence, I soon found innumerable other examples in many natural phenomena; these phenomena, in turn, may impress a corresponding pattern on prices.  For instance, I have found characteristic scaling patterns, from many small items to a few large ones, in the area and reserves of oil fields.  The valuation of certain gold, uranium, and diamond mines in South Africa scales.  Storms and earthquakes scale.

“You can imagine a chain reaction.  Weather affects harvests, and harvests affect prices.  The distribution of natural resources around the globe—oil, gold, and other minerals—affects supply, hence affects prices.  The same goes for business: The size of the firms in an industry, from mighty Microsoft to a legion of little software houses, also follows a scaling pattern.  So, industry concentration affects profit, hence affects stock prices.  Now, this is unsatisfactory for a rigorous analysis of cause and effect in economics.  But if one must have a ‘story’ to explain data, then this is at least a plausible partial one.  Scaling enters the system from the fundamentals of weather patterns, resource distributions, and industrial organization.  Scaling finishes—and feeds back through the system again—in the market place.

“…Imagine, finally the world economy: a chamber of mirrors.  Each company relays, distorts, and attenuates the economic signals as they flash around the globe.  The signals fade in time.  But it can take months, years, or decades for a signal to become so weak and remote as to be unremarkable.  Such is long-term dependence in an economy: Every event, no matter how remote or long ago, echoes across all other events.”

    Benoit Mandelbrot, The Misbehavior of Markets


FX Trading – Time to look in the other direction—at least for short-term bounce?

We saw a significant degree of real and psychological capitulation yesterday in favor of the dollar.  The driver for the buck continues to be risk (money back to the center to hide, we see it in the bond prices and soaring labor yield), global growth screeching to a halt (we see that in the big cut out of Australia), and emerging markets most everywhere being crushed.


10-yr Treasury Notes Daily
 

chart


Time for a breather here?
 chart


Aussie: Is it “sell the rumor and buy the news”?  Or is it trying to catch a falling knife?  Maybe not a bad short-term risk/reward bet given the massive hammering of the Aussie yesterday.  Buying power is available, as evidenced by the following stat from the Commitment of Traders report as of 30 Sep 2008 (this is likely magnified now):

Spec Traders:

Short Aussie futures 23,450   72%
Long Aussie futures   9,103    18%

 chart

A bounce is worth a bunch of points. But this is a trade you enter at your peril—take a shot with a stop-loss only.  Big down moves usually don’t turn on a dime.  And the fundamentals really haven’t changed.  We think deflation will soon replace inflation as the order of the day.  Deflation isn’t good news for currencies such as the Aussie levered for global growth and inflation.  But I guess that is clear to many already!
--------------------------------------------------------------------------------------------------
Advertisement: Black Swan Capital Forex & Currency Futures

Our Members bagged more big profits yesterday.  If you’re looking to put some speculative capital to work, with the opportunity to make big profits, we think you should give our Forex & Currency Futures service a try.  Click here to view the profits our Members have bagged this year and a detailed performance summary.

Link to Black Swan free research blog: www.blackswantrading.com/members
-----------------------------------------------------------------------------------------------------------
If we had to pick a “looking in the other direction” favorite, I guess it’s the good old Swissie.  With the Eurozone breaking down in a big way, Switzerland, though not setting the world on fire and still smarting from the reality that Swiss bankers don’t seem to be able to control risk any better than anyone else, seems as though it might garner some money flow from the zone and Central Europe. 

Swiss futures Daily: A decent risk/reward setup we think.  We know where to run from the trade…it appears the selling pressure is waning, evidenced by the decline in selling volume in the Swiss futures listed on the CME. Notice the high volume of selling at the previous low, #3, compared to the selling even though that low was pierced.  Maybe this is telling us something.  Key word is “maybe.”  But, we are thinking risk to reward and as stated, we know where we are wrong on the trade and it isn’t far away.
 chart


Longer term our reasons why the dollar has put in a long-term bottom haven’t changed.  The trend is validating those reasons.  We think the buck is beginning at the early stages of a multi-year bull market rally.  We stay with those reasons and that trend over the intermediate-term until something changes.  But we can’t help pecking when a near-term opportunity in the other direction sets up.

Regards,
Black Swan Capital


Archive

Black Swan Capital LLC  | 2161 SW Racquet Club Drive Palm City, Florida 34990
http://www.blackswantrading.com | jcrooks@blackswantrading.com

Legal disclaimer and risk disclosure

Currency Currents is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to options should be strictly the money you can afford to risk. While every effort is made to evaluate the actual experience of subscribers, all performance figures must be considered hypothetical, and past results are no guarantee of future performance. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html

Related reports

Your Summer Housing Market Update by Money and Markets
Fri, Jul 3 2009, 12:39 GMT

Asia Market Update - Most Asian equities indices track the US session declines as nonfarm payrolls data disappoints by TradeTheNews.com
Fri, Jul 3 2009, 11:55 GMT

KBC News Picks - US: Payrolls report disappoints in June by KBC Bank
Fri, Jul 3 2009, 07:38 GMT

Daily FX Market Commentary - USD and JPY have strengthened by Danske Bank A/S
Fri, Jul 3 2009, 06:57 GMT

US: Employment report disappoints by Danske Bank A/S
Fri, Jul 3 2009, 06:47 GMT

aud, us, markets

View All

Related content


Interested in forex trading? forex brokerage firms!


MG Financial Group
Contact the broker/FDM
Open a demo account
NordMarkets.com
Contact the broker/FDM
Open a demo account
Interbank FX, LLC
Contact the broker/FDM
Open a demo account
FXDD
Contact the broker/FDM
Open a demo account
Alpari (UK) Limited
Contact the broker/FDM
Open a demo account

GET CASH BACK FOR YOUR TRADES!   Learn more about the Pip Rebate Program

Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer.

Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. FXstreet.com has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: errors and Omissions may occur.

Any opinions, news, research, analyses, prices or other information contained on this website, by FXstreet.com, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXstreet.com will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

©2009 "FXstreet.com. The Forex Market" All Rights Reserved.