Tuesday December 27, 2005 - 19:16:21 GMT
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Black Swan Capital - www.blackswantrading.com
Could belief in recovery change the game?
“During the 10 years I traded for George Soros, I never heard him speak once abut a winning trade. To hear him talk, you’d think he had had nothing but losers. Conversely, listening to the biggest losers, you’d think they had had nothing but winners.”
Victor Niederhoffer, The Education of a Speculator
Quietly Germany seems to be building a bottom-up corporate recovery. It may be similar to what we’ve already witnessed in Japan, which caught many by surprise. If this recovery scenario proves true, it should mean the euro is very attractive at these levels and represents an excellent risk/reward trade.
Here are few macro charts to suggest the recovery in Europe may continue to unfold:
1) Liquidity abundant driven by lower rates:
3) Consumers have already retrenched.
3) The fall in the euro has boosted exports.
A rebound in Europe, driven by Germany, would provide the ECB with some ammunition to at least alter market expectations that their last hike represented “one and done.”
If we couple that with what the US yield curve is telling us about the potential for slowdown in the US, as you can see two-year notes are now yielding more than five-years and they are closing in fast on ten-years:
US Yield Curve:
…the US dollar’s positive yield differential would begin to fade against the euro—expectations could fade even faster, as the positive and growing yield differential has been a key driver for the buck throughout 2005.
That’s why we think this chart looks very interesting, as it suggests to us EURUSD could be groping for a bottom in here, at least of the intermediate-term in nature:
A break above the daily downtrend line going back to mid-March ’05 might just be all the confirmation we need to act. And that could come very soon. Stay tuned.
Black Swan Capital
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