Thursday August 2, 2007 - 11:09:17 GMT
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Black Swan Capital - www.blackswantrading.com
Black Swan Currency Currents
FX Trading â€“ Follow the Leader Following the Leader
Want to know whatâ€™s happening in the currency markets? You may want to check out the stock market first. Japanese yen (red) versus the S&P 500 Index (blue) as seen below ...
[Chart not available in text format -- Visit www.blackswantrading.com]
We often turn to this particular correlation between the stocks and currencies because we think itâ€™s a good indication of risk-taking. Easy money has funded the rocket-ride in share prices and beaten down the worldâ€™s primary funding currency.
Now, as we have a few times in the recent past, we are watching risky bets reverse. The broader stock market is in decline and the Japanese yen is rallying.
Is this just another cool down period before equities run back to all-time highs, the yen to new lows? Considering the starved credit market (LBOs, subprime, etc.), itâ€™s hard for us to think so.
Weâ€™re steering towards the â€śitâ€™s different this timeâ€ť camp.
We should probably get a very good idea of where we stand with that theory after the ECB and BOE report on interest rates a bit later this morning and the July U.S. jobs report is released tomorrow. No rate hikes are expected out of either bank, but price action following the announcements should tell us what we want to know.
Additionally, an ADP employment report came in on the weaker side of the ledger yesterday. Perhaps a precursor to a weaker than expected payrolls report tomorrow? Again, the buckâ€™s reaction to tomorrowâ€™s data, good or bad, should give us a good idea of how the market is feeling.
Currencies have been fairly quiet this week. I imagine reaction to the upcoming news will give us some good direction. Is the cool down period over? Or is it just the beginning?
Stay on your toes.
John Ross Crooks III
Black Swan Capital
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