Monday December 21, 2009 - 12:57:25 GMT
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Black Swan Capital - www.blackswantrading.com
The yen will take back carry trade crown in 2010
The European Central Bank won't bail out debt-stricken member states such as Greece, which must repair its public finances on its own, ECB governing council member Ewald Nowotny said. (WSJ)
The rand declined to a six-week low on speculation the interest-rate appeal of holding South African assets may diminish as the dollar appreciates. (Bloomberg)
Hungary‚Äôs central bank will probably cut its benchmark interest rate today to the lowest level since the fall of communism to speed the country‚Äôs recovery from its worst recession in 18 years. (Bloomberg)
‚ÄúA tale of two worlds. We forecast 4% global GDP growth in 2010, but this masks two very different stories. One is a still fairly tepid recovery for the advanced economies. The other is a much more positive outlook for emerging markets, where we forecast output to grow by 6.5% in 2010. In short, we think that the themes of global rebalancing and EM growth outperformance have staying power and have even been bolstered by the crisis.‚ÄĚ
Morgan Stanley Global Economic Forum
FX Trading ‚Äď The yen will take back carry trade crown in 2010!
Any dollar bull story must consist of the Mr. Greenback relinquishing its role as carry trade currency i.e. primary major currency borrowed to fund risky asset and other high yielding investments. The Japanese yen, the all-time carry trade champ, looks like it is about to be anointed once again.
This recent note from the Financial Times Lex column summed it up well [our emphasis]:
‚ÄúWhen you run out of things to say, shout. On that rubric, the Bank of Japan [BOJ] is yelling. In spite of holding the record for the consecutive number of years of deflation (seven), the BoJ has said it will no longer ‚Äėtolerate‚Äô falling prices. This is a sop to the government, which wants the central bank to help the economy. Judging by BoJ‚Äôs inflation forecasts, negative 1.5 per cent this year, minus 1 per cent next year and a 0.7 per cent drop in 2011, Japan has to tolerate deflation a while longer.
‚ÄúThe alternative is aggressive quantitative easing, a successful Japanese export little practised at home of late. Buying government bonds would help fund the budget deficit. With other central banks talking about exiting QE, however, it would also undercut the yen, which on Friday fell almost a cent. Shout? Somebody heard.‚ÄĚ
Among the major currency pairs, we think being long USDJPY in 2010 will be the best single payoff. Key central banks are poised to drain the punch bowl in 2010. But the Bank of Japan will likely be the glaring exception to this rule. Thus, Japanese yen yields remain at enticing carry levels while US rates should be ticking higher across the curve. [Chart not available in text format.]
Black Swan Capital LLC
Note from David Newman‚Ä¶.
Our trading recommendations in our Forex & Currency Futures, Emerging Market Currencies, and Currency Investor services have been racking up some very nice gains lately, as our Members were well positioned for a dollar rally.
If you‚Äôve missed this initial move in the buck don‚Äôt worry. We think this is just the beginning of a major trend change which should offer plenty of opportunities to make good money, on both sides of the market. We‚Äôd love for you to give our recommendations a try.
Please contact me by email or telephone and I‚Äôd be happy to discuss which of our services best fits your needs.
All the best,
Director of Sales and Marketing
Black Swan Capital
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