Tuesday May 4, 2010 - 14:07:45 GMT
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Black Swan Capital - www.blackswantrading.com
Keep selling the news?Key News
- British manufacturing activity grew last month at its fastest rate in more than 15 years, a survey of purchasing managers showed on Tuesday, boosting hopes the broader economic recovery is gathering momentum. (Reuters)
- German retail sales declined unexpectedly in March, falling for two of the first three months of the year and acting as a drag on growth over the period, preliminary data showed on Tuesday. (Reuters)
- Banks Keep Lending Standards Tight (Wall Street Journal)
â€śVilify, Vilify, some of it will always stick.â€ťâ€” Pierre De BeaumarchaisFX Trading â€“ Keep selling the news?
In a game of relative value, thereâ€™s been good reason to put your money on the Australian dollar. The simple carry-trade theme makes Australia an obvious choice during a time when general financial market risk is surprisingly absent.
The following chart of AUDUSD next to the VIX (indicator of risk or investor fear in the market) shows the inverse correlation rather well â€“ when risk goes down, the Aussie goes up. [Chart not available in text format.]
Last week we saw a notable uptick in the VIX. The bounce came on support that stretches back to 2007 and 2008 lows.
Similarly, AUDUSD has found a point thatâ€™s providing some resistance â€“ its highs from Q4 2009. Today happens to be a pretty major setback along the lines of what Jack talked about yesterday with the euro and the Greek bailout:
Good News, Bad Action
The Reserve Bank of Australia overnight hiked its benchmark lending rate, again. The last couple quarters have set Australia apart from the other major central banks who are still struggling to tighten up amidst nascent job recoveries and sluggish growth trends. Weâ€™ll see another instance of this on Thursday when the ECB is scheduled to announce their latest monetary policy decisions.
Major Central Bank Rates
Australia [Chart not available in text format.]
United States [Chart not available in text format.]
Eurozone [Chart not available in text format.]
Canada [Chart not available in text format.]
Rates in the United States, Eurozone, and Canada have not budged ... while rates in Australia have climb back to retrace 150 basis points since the RBA made the decision to clamp down.
Today though, with the RBAâ€™s latest decision to hike rates, the Australian dollar has not fared well. In fact, itâ€™s leading the way lower today, down nearly a full percent.
Most obviously, the market is taking its cues from the rhetoric accompanying the interest rate decision. And that rhetoric has â€śpauseâ€ť written all over it. Apparently the first tightening phase is over. And thatâ€™s the bit of info on which traders are latching down, despite the forecast for RBA rates over the rest of 2010, as you can see in the chart below: [Chart not available in text format.]
And let us not forget about the role China plays in all this. We mustnâ€™t discount the latest â€śtighteningâ€ť maneuver by China, raising the reserve requirements again in a telegraphed effort to stem economic overheating and too much speculation and inflation.
Sure, Chinaâ€™s committed themselves to an easy monetary policy and has acknowledge some risk to economic recovery still, in much the same way the Federal Reserve has played its cards, but any steps to slowdown whatâ€™s become the worldâ€™s growth engine, and more importantly in this case Australiaâ€™s growth driver, will hurt the economic expectations that have helped push the Australian dollar.
Something to watch for, at least, as resistance looms.
John Ross Crooks III www.blackswantrading.comCurrencies are another asset class â€¦ David Newman here ... on Investing versus Trading
How many times have you seen pictures of people sitting on the beach with their laptop in hand in those â€śTrade Forex Commission Freeâ€ť advertisements? Open a FX account, quit your real job, sit on the beach and get rich is the implicit message. Itâ€™s ridiculous! But unfortunately that is what sells.
It doesnâ€™t have to be that way. You donâ€™t have to buy into the hypeâ€¦and you donâ€™t have to take that much risk in order to get involved in currencies. Trading can be profitable; but it requires extreme focus and discipline. There is another way if you want to â€śinvestâ€ť in currencies.
Investing in currencies for the long haul means using currencies as another asset class in your portfolio. An asset class that will stand along stocks and bonds and hopefully provide some much needed diversification.
There are plenty of low leveraged long-term investment choices available to you so you can make real money in currencies. They are called Currency Exchange Traded Funds (ETFs).
An ETF is a simple straightforward currency product that you can buy and sell in your standard equity brokerage account. Itâ€™s the same as buying any other fund traded on the exchange. We offer recommendations on Currency ETFs in our month Currency Investor newsletter. We donâ€™t recommend trading them; we do recommend investing in them using a long-term buy and hold strategy.
To sum it up: Our monthly Currency Investor newsletter is geared toward newcomers and experienced investors who are looking for a conservative approach to the foreign exchange market, and learning more about how the global economy works.
In plain language we deliver global macroeconomic analysis and actionable ideas geared toward exchange rate fluctuations.
Our analysis is comprehensible and our recommendations consist of ETFs, as I said, so donâ€™t get turned off by buzz words like â€śexchange ratesâ€ť or â€śforeign exchangeâ€ť â€“ this investing strategy is as easy to implement as buying and selling stocks.
Plus, at $39 per year itâ€™s a deal youâ€™d be hard-pressed to find anywhere else.
Thorough global analysis plus complete investment guidance ... and all for only $39 per year? You can become a Member of our Currency Investor service at our home page via credit card or PayPal.
All the best,
Director of Sales and Marketing
Black Swan Capital [email protected]
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