Friday December 8, 2006 - 11:21:18 GMT
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Black Swan Capital - www.blackswantrading.com
â€˘ Japan's economy has grown more slowly than predicted. (BBC)
â€˘ Homeowners had $10.9 trillion in equity stored up in their properties at the end of the third quarter, an amount that was essentially flat compared with the previous quarter and down from a nearly 3% rate of growth during the same period last year, the Fed said. (WSJ)
â€˘ UK annual house price inflation rose to 9.6% in November, according to the latest survey from the Halifax bank. (BlBC)
â€˘ Key Reports (WSJ):
8:30a.m. Nov Nonfarm Payrolls. Expected: +110K. Previous: +92K.
8:30a.m. Nov Unemployment Rate. Expected: 4.5%. Previous: 4.4%.
9:40a.m. Nov ECRI Inflation Gauge. Previous: 119.9.
10:00a.m. Prelim U Of Mich Consumer Sentiment Index. Expected: 92.0. Previous: 92.1.
â€śBut if thought corrupts language, language can also corrupt thought.
FX Trading â€“ Crossover?
We are now led to believe the European Central Bank is set to raise interest rates next year, but at a â€śslower paceâ€ť than we expected before yesterday. We for one werenâ€™t really certain on any ECB rate timetable anyway, so the news didnâ€™t motivate us rush out and sell euro.
This currency game is, and always will be, relative. When it comes to interest rates and the currency decision, it is not just about forecasting rates, but how rates play out against expectations (surprise factor) relative to the movement of rates supporting other currencies. We think most people, including us, expect US rates to decline next year as euro rates are risingâ€”the degree to which this happens is a bit fuzzy, but the degree for now doesnâ€™t seem the important part. The important part is the dollar is in jeopardy of losing its relatively high yield differential, which has provided much supportâ€”just how much we will only know with hindsight.
In terms of degree, what would be a surprise, and we think quite conceivable, is if euro-zone rates cross above the Fed fund rates. Growing expectations of this reality would likely propel euro much higher relative to the dollar.
The last time the US economy was headed toward the rocks we got 13 rate cuts from the Fed. Granted, we had the Nadadaq crash, and global deflation concerns forcing Mr. Greenspan to usher in the â€śemergencyâ€ť rate. But we have a housing crash potential looming this time; do I hear any guesses on the number of cuts that might produce?
Later today we get a look at US non-farm payrolls for November. A lot seems to be riding on this number. If we get a good number of new jobs, the euro will likely stage a much needed correction, or more, and any belief in the potential for crossover will fadeâ€”for awhile at least. A bad number on jobs today and the dollar will likely be pummeled as crossover begins to enter the currency trader lexicon.
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