Thursday December 27, 2007 - 13:09:19 GMT
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Black Swan Capital - www.blackswantrading.com
Back to Basics
FX Trading â€“ Back to Basics:
Investors who actually returned from holiday yesterday saw the U.S. dollar take a hit â€“ a nice gift for those who are still predicting the worst for the greenback. In light of the across-the-board weakness, it makes us wonder if the market is satisfied with the dollarâ€™s correction and is ready to ride the next wave down.
A look at the U.S. Dollar index may tell the story ...
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The U.S. dollar index u-turned at 78.00 -- an obvious stopping point in an area of overhead resistance. Might this tell us that investors are satisfied with the corrective move? Is it time to get back on the bandwagon and sell dollars?
Weâ€™ll definitely need to see follow-through selling before we can mark an end to this rally. But we donâ€™t want to underestimate the power of the dollar bears. After all, theyâ€™ve become so accustomed with seeking out the buck and pressing down the panic button. Weâ€™re sure theyâ€™ve been salivating over this rally, waiting for a new opportunity to jump in a sell like itâ€™s going out of style.
And the dollar isnâ€™t the only currency that investors are pressing down on. The carry trade looks to have returned, at least for the interim, and the Japanese yen ainâ€™t looking so hot. The state of Japanâ€™s economy sure isnâ€™t helping matters. A recent report showed that Japan hasnâ€™t contributed less (9.1%) to the global economy in the last 25 years than it has in 2007. That combined with the â€śpeace on earth mentalityâ€ť of the Christmas season has wiped risk off the table and swept the yen under the rug.
Itâ€™s often said â€śThe market hates uncertainty.â€ť Well, Iâ€™m not going to tell you what we think of the people who say that, but I will say that with the relative quiet of the holiday season investors arenâ€™t sure what to make of everything (assuming theyâ€™re ever sure what to make of everything.) And thatâ€™s why I think market players have turned to what theyâ€™re comfortable doing â€“ selling dollars and selling yen!
John Ross Crooks III
Black Swan Capital
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