Monday April 3, 2006 - 11:40:43 GMT
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Black Swan Capital - www.blackswantrading.com
Coin flip anyone?
â€śInvest in silver and you can never go wrong.â€ť
Nelson Bunker Hunt
FX Trading â€“ Coin flip anyone?
Last Friday, Phillip Coggan of the Financial Times penned these words:
â€śIf, as the optimists believe, the rise of Asia has reduced inflationary pressures in the west for the foreseeable future, then the Fed may be close to going too far. If, however, rising commodity prices are a sign of general inflationary pressures to come, neither the Fed nor the ECB may have done enough.
â€śThe answer to this puzzle may lie in the fringe markets. If their problems start infecting the S&P 500 or the FTSE 100, that will be a sign that the central banks have got it wrong.â€ť
This battle between â€śtoo far by central banksâ€ť and not far enough could help explain why the movement in the major currencies, with the exception of the comdols (commodity dollars), has been seemingly so random lately.
If we assume for a moment that we have no clue where interest rates are headed (which we donâ€™t) and the â€śfringe marketsâ€ť continue to fray, we can build a bullish scenario for the dollar on safe-haven money flow, but thatâ€™s not a bullish scenario for commodities.
Weâ€™ve seen no evidence suggesting a break in commodities. Instead we saw fresh new highs in copper, gold and silver last week.
In the good old days, a couple months ago, we could rely on the dollar-gold mirror image relationship i.e. as gold went up, the buck went down. No more! Today, we witness a strong dollar rally and gold is up $4.70., silver adding another 13 cents for grins, and copper making another beeline for the ozone.
If we assume the Fed has gone too far, that suggests the dollar falls on declining yield differential and good news from the eurozone, as we received this morning. That â€śshouldâ€ť boost the euro relative to the dollar as it gives the ECB room to move. But instead, we see the euro tanking. The yen is diving too on the rationale yen investors are moving out into higher yielding currenciesâ€”like the buck! Does your head hurt as much as ours?
How about this for todayâ€™s final analysis:
random /rĂˇndem/adj. 1 made, done, etc., without method or conscious choice (random selection)
Weâ€™re going with it until further notice.
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