Monday April 25, 2005 - 10:25:53 GMT
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Black Swan Capital - www.blackswantrading.com
Staying with the $ story
“I figured I’d study deception from the smallest to the largest organism. I began with viruses, moved to ants, then realized that deceit is ubiquitous and terminated the study. Viruses use it to invade bodies. Ants use it to enslave other ants. Moths use it to evade hungry birds. Generals use it to defeat brilliant generals. Soldiers use it to live another day. Girls and boys use it to attract each other. Con men use it to profit from others’ labor. Magicians deceive audiences who how that the illusion is a trick. Poker players use it to bluff. Economists use it as the key variable in explaining the organization of a firm. Speculators use it to shake weak hands out of a position at just the wrong time.”
Victor Niederfhoffer, The Education of a Speculator
We remain dollar bullish intermediate-term. We see two major themes in the market, neither of which has yet changed our opinion on the dollar.
1) US economy is slowing, so the Fed pulls back on its reins. This will reduce the expected positive yield differential and could lead to international money flowing back out of the US on the belief that central banks must continue to accommodate market liquidity. This view we think is flawed. We believe the Fed will continue to be aggressive in its march towards normalization of market rates.
2) Chinese currency revaluation is imminent. We have been hearing this for a while. It probably helped the yen on Friday and on the open in Asia. No doubt the Chinese are forced to throw a bone because of the growing chorus calling for trade tariffs on Chinese goods in both the US and Europe. The belief is that all Asian currencies move higher on this move. We are not sure. We are not sure if China actually does anything, given the dismal condition of its banking sector. And if it does do something, we expect it to be a very narrow widening of the band—which should disappoint once that realization hits the market.
Here’s a look at the daily US $ index chart. It shows a bounce off a standard retracement level (50%). The real test comes near its recent high at 8530-40 level. Stay tuned.
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