Tuesday January 10, 2006 - 12:25:29 GMT
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Black Swan Capital - www.blackswantrading.com
Current Account rolled out again...
“From the one crime recognize them all as culprits.”
We continue to see a lot of ink spilled foreshadowing yet another painful death for the dollar. And believe it or not the argument being resurrected by “analysts” is the old tried and failed current account conundrum as a possible reason for the “real” demise of the dollar—again, this time!
“The current account deficit is expected to stick at about 6.5 per cent of US national income — more than $850 billion (£480 billion). Market concern over the current account position may intensify this year if, as Bank of America predicts, the US balance of payments on income from foreign investments turns negative for the first time,” writes Gary Duncan, in the Times Online this morning. (A rather good summary, we might add.)
A new wrinkle spotted by the boys at Bank America for us to fret about: US balance of payments on income!
Well, maybe they are right. Maybe it will be the current account that does the dirty deed to the dollar. But trading off the current account requires a whole different time frame than most mortals are used too—unless of course you are Warren Buffet. (And even he got nicked, shall we say, playing that little game.)
Below is a chart of the US Current Account Deficit (Quarterly) and just below that is the US $ Index Monthly. If you can find a tradable entry and exit point using these two price series you are good—really good!
The simple point we are trying to make is this: Sure, the gapping US current account may be bad (though even that is still debated by economists at times), but it’s just not a reliable indicator for us to use in trading. And if it’s not reliable than it is virtually worthless!
So, when you see the following sentence as you read the currency news:
“The US dollar is falling because the current account is rising.”
Read it as:
“The US dollar is falling because the blah...blah...blah.”
If you do that you may not sound smart in font of your friends, but your trading account will thank you.
Black Swan Capital
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