Monday March 7, 2005 - 11:21:07 GMT
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Black Swan Capital - www.blackswantrading.com
The dollar's "storm clouds"
“Although few would admit it, the truth is that the typical trader wants to be right on every single trade. He is desperately trying to create certainty where it just doesn’t exist.”
Mark Douglas, Trading in the Zone
“Storm clouds may once again be forming over the dollar,” said Steve Vames, writing for The Wall Street Journal this morning. I’m not sure about “storm clouds” but clearly Mr. Warren Buffet is back at it—talking his position.
Bonds rallied on Friday. A relief rally on a good, but not stellar, jobs report, and a belief the US economy can growth without inflation being a problem were given as reasons. Oh, I understand, non-inflationary growth is a good reason to dump the buck.
The other “storm cloud” in the market for our consumption is the rise in oil prices. Hmmm! But aren’t oil prices rising everywhere? Why is this only a problem for the dollar? It only becomes a problem for the dollar in particular if Mr. Greenspan uses it as a reason to go slow on the interest rate front. There has been no sign of that yet.
No “storm clouds” in the key news for the dollar this morning: we see Japanese capital spending falling, European retail sales in the tank, and China’s pronouncement that the much anticipated yuan revaluation is on hold and any revaluation will be small.
But maybe we need look no further than to Friday’s price action. If the dollar can’t rally on good news, doesn’t that speak volumes about its overall weakness? Often that is exactly the case. But often we have seen moves on “jobs report Friday” quickly reversed.
Take a look at the previous four jobs report Friday’s (Feb 4, Jan 7, Dec 3, and Nov 5)— the bars outlined on the daily euro chart below. After very big moves in the euro on the day of the report each month, three out of four of these moves had a significant reversal over the following two to five days.
But does this tell us anything? Maybe! It does keep the possibility wide open that Friday’s move could quickly evaporate—the way clouds do.
In the end, the “storm clouds” seem to be based on the structural problems that have been in the market for a while—the US government is spending money like a bunch of drunken sailors and continues to try to “expand the empire” on the cheap. It is not a comforting reality for anyone who owns dollars. Granted!
But, the key question is: Can a rationale so clearly understood by everyone in and outside of the financial markets continue to have an impact on price? Unfortunately I keep coming back to my favorite non-answer—maybe!
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