Tuesday May 30, 2006 - 10:12:57 GMT
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Black Swan Capital - www.blackswantrading.com
Rationales to sell the buck
â€śDon't gamble. Take your savings and buy some good stock and hold it til it goes up, then sell it. If it don't go up, don't buy it.â€ť
Rationales for a weaker dollar:
Fed pause â€“ though still a belief, it has become less so of late. â€śInterest-rate futures show traders have assumed a 56 percent chance the Fed will lift its rate by a quarter point at its June 28-29 meeting, up from 20 percent at the start of the month,â€ť according to Bloomberg.
Economic slowdown â€“ the belief in US economic slowdown is part and parcel to the idea the Fed can afford to pause. But pent up inflation expectations are lingering in the frontal lobes of Fed officials once again. This suggests to some the US economy will have to show more deceleration before the slow-down argument carries the day.
Relatively stronger economic momentum elsewhere i.e. Europe and Japan â€“ this argument seems to have some legs, as growth elsewhere also means central bank rate hikes elsewhere. However, until the Fed makes it clear whether it will pause or not, itâ€™s unlikely this driver will lead to a swift move lower in the buck. Yield is still a strong primary prop.
â€¦but then again, maybe none of this stuff matters if the market wants to sell dollarsâ€¦
Todayâ€™s rationale for the buckâ€™s dive is being attributed to a story that the â€śpotentialâ€ť successor to outgoing US Treasury Secretary John Snow will favor a weak dollar policyâ€¦
â€¦it seems rather flimsy to sell the dollar on a potential successor based on a potential policy. Maybe it proves any reason to dump dollars will do. So if we do get a real one, it might get ugly.
Jack Crooks, Black Swan Capital
Black Swan Subscription-based Service
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