Friday August 12, 2005 - 11:28:43 GMT
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Black Swan Capital - www.blackswantrading.com
Point and counterpoint on the $
“The criterion of truth is that it works even if nobody is prepared to acknowledge it.”
Ludwig von Mises
FX Trading – Point/Counter Point this morning
A review of themes favoring the dollar over the intermediate-term vs. counter views suggesting the dollar rally from the beginning of the year is over:
Theme: Yield differential favoring the dollar will be a magnet for hot money over time.
Counter view: The market has fully discounted this reality.
Theme: Relatively strong US economic growth will attract longer term direct investment money to the US shores.
Counter view: European growth has bottomed and growth is poised to rebound, so money should be flowing to the euro zone.
Theme: A weaker dollar won’t solve the current account deficit problem anyway, it only makes it worse in the near–term.
Counter view: The structural problems—current account and budget deficits—will again be the major catalyst for a resumption of the long-term dollar decline.
Theme: China is heading for a harder landing than expected. As money flows out of Asia to the US, it should lead to another leg up in the dollar.
Counter view: China has engineered a soft landing and the revaluation of the yuan means Asian central banks will reallocate out of the dollar.
Theme: The euro could soon become the next carry-trade currency.
Counter view: The European Central Bank will not cut interest rates. Though the ECB could be on hold for a while, the next move will be up for European rates as the economy rebounds.
A bad week for the dollar it was. But for now, we stick with our script of another leg up in the dollar once the dust settles.
Black Swan Capital
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