Friday March 17, 2006 - 11:17:06 GMT
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Black Swan Capital - www.blackswantrading.com
Yield expectation escaping...
â€śAnyone who lives within their means suffers from a lack of imagination.â€ť
Week in review...We were a bit on the fence, but happily long euro against the buck as the week began on a decent risk/reward technical setup. Our concern for the greenback was that soft economic data would be bad for the buck. Our standard of measure was the Eurodollar contract. We offered up the Dec â€™06 Eurodollar futures chart on Wednesday morning, after what looked like a breakout move on Tuesday (below is that chart with two more days of data, thru Thursday).
US fixed income, across the curve, was jolted higher yesterday on news that inflation is contained. The question is, and we donâ€™t have an answer: Is lack of inflation and the series of softer than expected data this week a sign of underlying weakness setting the stage for Bond King Bill Grossâ€™ (and we noticed Jim Grant is on the Fed is done page) scenario that the Fed is done, or pretty darn close to done? And if so, is it the front-end of the curve where the value lies?
Source: The Wall Street Journal
Thus, dollar weakness may have nothing to do with the full-moon this week. It may be just the beginning of a real shellacking as yield differential leaks from expectation.
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