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Friday July 20, 2007 - 11:28:22 GMT
Black Swan Capital - www.blackswantrading.com

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Momentum! Is it HY*Greed?

Key News
• China raised interest rates for the third time since March. The benchmark one-year lending rate will increase to 6.84 percent -- the highest in more than eight years -- from 6.57 percent, starting tomorrow. (Bloomberg)
• U.K. economic growth unexpectedly quickened in the second quarter as manufacturing rebounded. (Bloomberg)

Key Reports Due (WSJ):
There are no economic indicators scheduled for today.

Quotable

“There are certain things that cannot be adequately explained to a virgin either by words or pictures. Nor can any description that I might offer here even approximate what it feels like to lose a real chunk of money that you used to own.”
                                                 Fred Schwed from Where Are the Customers' Yachts?

FX Trading – Momentum! Is it HY*Greed?

Legendary trader Jesse Livermore is quoted as saying, “When it comes to trading its better to do right than be right.”  There’s a lot of wisdom in that wise little quip.  Lately, we’ve spent a lot of effort trying to “be right” about the yen.  Whether or not is undervalued, as we believe, is no matter.  What matters is price action when it comes to the important part of this—making money.

And price action in currencies it seems has become a momentum game for some pairs.  It’s reminiscent of the 1999 Nasdaq.  The Aussie has closed higher 10-days in a row; Kiwi is up 17 of the last 25 days (sharply higher on many of those).  The momentum players have been right—no matter if that makes sense or not. 

But remember, the momentum players were right in 1999 too, as they rode the internet craze with supreme confidence.  Woody Dorsey so perfectly coined this period “E*Greed.”   Are we in the midst of the “high yield currency greed” (HY*Greed) era?  If so, we think the culprit is liquidity. 

The question: Are there analyzable factors shaping up to suggest the currency momentum game driving HY*Greed may change?  Here’s a short list of potentials:

1) Central banks keep hiking (China tomorrow and Japan is due)
2) Lending standards keep tightening (E.G proof of job required for loan)
3) Derivatives fear spreads (JP Morgan announces more exposure than so far admitting)
4) Cost of private equity money keeps rising (who ends up holding the bag when this game ends)

In short, if this stuff proves true, we would expect global liquidity to fall.  And if global liquidity falls, we would expect momentum in the currency market to fall along with it.  And one of our favorite short candidates in that environment is New Zealand $ - Swiss franc. 

072007_nzdchf

The trend is still the friend of the momentum crowd, so extreme patience is required here, as fundamentals don’t matter much when it comes to momentum.  But as we said, if for some strange reason there are limits to global liquidity, just maybe fundamentals will matter again.  But change takes time and has various phases.

“Sometimes what seems to be a new idea may actually be just the recognition on a wider scale of an already developing idea.  The ‘breakout’ movement occurs when the new paradigm, already almost completely formed, achieves a burst of recognition usually associated with particularly poignant tipping points.”  [Our emphasis]

                                           Woody Dorsey. 

When I typed “high yielding currencies” into Google this morning I got 2,080,000 results.  Hmm…!

Have a great weekend!

Jack Crooks

 

Forex Trading News

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Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



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Amazing Trader EVENT RISK Calendar:

Wed 18 Oct
12:30 US- Housing Starts & Permits
14:30 US- EIA Crude
Thu 19 Oct
01:30 AU- Employment
08:30 GB- Retail Sales
12:30 US- Weekly Jobless
Fri 20 Oct
12:30 CA- Retail Sales & CPI
14:00 US- Existing Homes Sales

Forex Trading Outlook


Trading Opportunities


  • POTENTIAL PRICE RISK: HIGH Tue-- 08:30 GMT GB- CPI top tier confirmation of Inflation.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT DE- ZEW Survey second most important German monthly Survey.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT EZ- final HICP revision to flash report. Revisions are usually minor.

  • POTENTIAL PRICE RISK: Medium Tue-- 13:15 GMT US- Industrial Production. Top output indicator.



  • POTENTIAL PRICE RISK: Medium Wed-- 12:30 GMT US- Housing Starts and Permits revision to flash report. Useful housing leading indicator.

  • POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top WTI inventory measure.



  • POTENTIAL PRICE RISK: Medium Thu-- 01:30 GMT AU- Employment. Top economic indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 02:00 GMT CN- GDP. Top economic indicator.


  • POTENTIAL PRICE RISK: HIGH Thu-- 08:30 GMT GB- Retail Sales. Top consumption indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 12:30 GMT US- Weekly Jobless. Employment Indicator.



John M. Bland, MBA
co-founding Partner, Global-View.com

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