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Currency Currents

Thu, Oct 9 2008, 12:42 GMT

Black Swan Capital

Key News
• Asian central banks on Thursday joined their western counterparts in co-ordinated cuts to interest rates in an effort to curb the risk of the credit crisis sparking a severe global recession. (FT)
• Japan said on Thursday it would consider any request from South Korea for assistance, after the Korean won sank to a 10-1/2-year low, but a spokesman said Seoul had not yet asked for Asian crisis talks.
 
US Economic Events (WSJ):
8:30a.m. Initial Jobless Claims For Oct 4 Week: Expected: -22K. Previous: +1K.
10:00a.m. Aug Wholesale Trade: Previous: +1.4%.
10:00a.m. DJ-BTMU Business Barometer For Sep 27: Previous: -0.3%.

Quotable
“Been in this game one-hundred years, but I see new ways to lose 'em I never knew existed before.”

    Casey Stengel

FX Trading – Can it be this simple?

As the stock market goes, so goes the euro against the US dollar.  Can it be that simple?  Short answer is yes.  Risk aversion right now is dollar positive.  And falling stocks are the best general definer of a risk adverse environment:

But, we can’t expect these correlations to hold up forever.  In fact, now that we are finally beginning to see some normalization on interest rates across the major currencies i.e. differences in yield spreads fading, and the expectation that global deleveraging will be with us for a while, currencies could soon start to be valued again on individual country fundamentals, while correlations of the past cycle could break down completely. 

So, it can be as easy as selling euro against the dollar as the stock market falls, and maybe today its buy the euro if the stock market bounces.

DJ Industrials vs. EURUSD 240-min:
 

Sooner or later the real world may close in on past seeming simplicities of correlations in the currency market.  A look at some other key correlations we watch…

US$ Index vs. Gold Daily:  A bit of decoupling going on here…
 

US$ Index vs. 10-yr Note future Daily:  A bit of divergence here now…
 

Oil vs. US$ Index Daily:  This negative correlation still holding…
 

Regards,
Black Swan Capital

• Black Swan Capital Currency Currents 9 October 2008

Published on  Thu, Oct 9 2008, 12:45 GMT