Thursday December 22, 2005 - 11:48:31 GMT
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Black Swan Capital - www.blackswantrading.com
Signs of a euro rebound--maybe?
“’God bless us every one!’ said Tiny Tim, the last of all.”
Being mostly dollar bulls this year, and despite the run in the buck of late, we believe there are good reasons to start looking for a rally in EURUSD.
Yield differential still large but possibly narrowing: The US yield curve might still be the best guide of what to expect from the US economy. It’s hinting slowdown ahead.
• Housing affordability is taking a bigger chunk from Mr. Consumer. Housing inventories hiking up rapidly
• Headline CPI moving back in line with core is where we are leaning. Despite the fact that we don’t have “demand destruction,” crude prices are stable and could fall from here; based on our look at the charts. Boone Pickens thinks $50 oil is in the cards before any rally can get underway—sounds good to us.
• Real income remains stagnant while debt levels continue to into the ozone
Europe may surprise on growth as well as rates:
• We just maybe we are seeing bottom-up micro growth in Germany—the kind of growth that snuck up on the experts in Japan.
• The ECB did it once. If they have any validation, no matter how thin, they may just do it again.
This game is played at the margin and it’s at the margin that we see US fraying and Europe coming together.
In short, if expectations for a slowdown in the US continue to build—the chorus call of recession is growing louder—while Europe improves even ever so slightly, that may do the trick for the lowly euro--the currency that was King this time last year.
EURUSD downtrend is still clearly intact. But as you can see in the chart, the five-year T-Note futures and euro are tracking downward together. Thus, we let the yield curve be our guide.
Black Swan Capital
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