Wednesday April 26, 2006 - 10:35:09 GMT
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Black Swan Capital - www.blackswantrading.com
Fed pause in the bag?
â€śThe trend is your friend except at the end when it bends.â€ť
FX Trading â€“ Fed pause in the bag?
This is a view from an asset manager quoted in the Journal this morning:
â€śI just can't seem to shake the specter of a weakening housing market, increased energy costs and interest rates, rising national and personal indebtedness, and unrest in too many areas around the world. I still believe we have a greater risk to the downside in this market than potential to the upside."
This seems the consensus view.
The intermediate-term peak in the US dollar index was mid-November last year. Much of the dollarâ€™s weakness of late has been predicated on the consensus view: a pause in US growth to be accompanied by a signal the next hike from the Fed in May is its last for a while.
We also keep hearing the phrase: â€śThe Fed will be data dependentâ€ť going forward; though we are not quite sure what the heck that means.
But what if the much expected US slowdown doesnâ€™t materializeâ€”is that the kind of â€śdependent dataâ€ť the Fed needs to decide not to pause? If a slowdown is on the way, it doesnâ€™t seem to be showing up in the latest series of data:
â€˘ Consumer confidence at a 4-year high
â€˘ Job market continuing to firm
â€˘ Existing home sales better than expected (albeit some devil in the details)
â€˘ US bonds tanking on â€śgrowthâ€ť expectations here and abroadâ€”it seems
Andâ€¦a Dow Theory Confirmation high is not the stuff of a pending economic slowdown:
So, is the consensus view on the Fed and the dollar in for a little surprise? Stay tuned!
Black Swan Capital
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