Tuesday November 4, 2008 - 16:50:41 GMT
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Black Swan Capital - www.blackswantrading.com
That Day is Finally Here
â€˘ Australia Central Bank Lowers Interest Rate Larger-Than-Expected 75 Points (Bloomberg)
â€˘ Emerging-Market Stocks Extend Record Rally, Paced by Thailand, Indonesia (Bloomberg)
In honor of todayâ€™s US Presidential Election finale, I thought a couple well-formed thoughts on voting would be appropriate. Enjoy.
â€śVote: the instrument and symbol of a freeman's power to make a fool of himself and a wreck of his country.â€ť -- Ambrose Bierce
â€śPerhaps the fact that we have seen millions voting themselves into complete dependence on a tyrant has made our generation understand that to choose one's government is not necessarily to secure freedom.â€ť â€“ Friedrich Hayek
â€śAlways vote for principle, though you may vote alone, and you may cherish the sweetest reflection that your vote is never lost.â€ť â€“ John Quincy Adams
â€śAnything important is never left to the vote of the people. We only get to vote on some man; we never get to vote on what he is to do.â€ť -- Will Rogers
FX Trading â€“ That Day is Finally Here
November 4, 2008: Some of us might have been waiting for this day longer than others. Some of us may have been clamoring for it, while some of us may have been dreading its arrival. Either way, that day is here and a major change could be in order. Thatâ€™s simply because ...
Today might be the day that marks the beginning of a legitimate US dollar correction!
Sure weâ€™ve been open to this potential for the last several weeks, as we think a lasting correction is due before the US dollar can start on its next powerful leg of what we are expect could be a multi-year bull market.
Since July, a few days of indecision strung together have been the only reprieve within this powerful US dollar rally. So whatâ€™s going on today that might signal the start of something bigger?
Well, itâ€™s a little something we like to call adverse price action. In other words, price action inconsistent with recently released economic matters. In this case, we learned that the Reserve Bank of Australia got a little rambunctious and cut interest rates by more than expected. Instead of bringing the benchmark rate down by 50 basis points, they went for 75 basis points.
Typically, the foreign exchange market is dominated in the near-term and long-term by interest rate dynamics. Lower interest rates, or expectations for interest rates to be cut, are negative for a currency; and vice versa.
But today, after the RBAâ€™s earlier decision, the Australian dollar is rallying sharply. On a 60-minute chart, you can see that the Aussie popped above a near-term resistance level:
(Chart unavailable in text format.)
A breakout from these levels might offer up enough steam to move the Australian dollar higher for a while longer. After all, it has been beaten down as much or more than most other major currencies paired against the buck.
But itâ€™s not only Australiaâ€™s dollar thatâ€™s pushing higher versus the greenback today. The entire pack, with exception of the yen, is considerably higher. And whatâ€™s important to note here is that the European Central Bank and the Bank of England are stepping back into the spotlight later this week. Thatâ€™s when theyâ€™ll also be deciding on interest rates.
Expectations seem to be calling for a sizeable downward adjustment â€“ 50 basis points â€“ by each of the central banks. As of right now the seemingly contradicting price action of the euro and British pound could be buy-the-rumor-sell-the-news stuff. But weâ€™ll have to keep watching through Thursday when these central banks make their announcements.
Until then, weâ€™re voting for this elusive dollar correction to show its face. And if youâ€™re note voting for the US dollar one way or the other, then ... well ... donâ€™t worry about us holding it against you. Itâ€™s not necessarily your capitalist duty to vote.
John Ross Crooks, III
Black Swan Capital LLC
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