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Friday September 28, 2007 - 12:03:29 GMT
Black Swan Capital - www.blackswantrading.com

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Just another number or something more

·         Rising prices and surging demand for the crops that supply half of the world's calories are producing the biggest changes in global food markets in 30 years, altering the economic landscape for everyone from consumers and farmers to corporate giants and the world's poor. (WSJ)

  • Key Reports Due (WSJ):

8:30a.m. August Personal Income. Expected: +0.3%. Previous: +0.5%.

8:30a.m. August Personal Spending. Expected: +0.4%. Previous: 0.4%.

9:45a.m. Sep Chicago PMI. Expected: 53.0. Previous: 53.8.

10:00a.m. End-Sep Reuters/U Of Mich Sentiment Index. Previous: 83.8.

10:00a.m. August Construction Spending. Expected: -0.2%. Previous: -0.4%.

 

Quotable

“It is the growth in speculative capital flows moving in a trend-following fashion that makes the trend so persistent; it is the persistence of the trend that makes a trend following bias so rewarding; and it is the rewards reaped by speculation that attract increasing amounts of capital.”

 

                                                                        George Soros

 

FX TradingJust another number or something more

 

Well, we watched history being made in the form of an all-time low in the US$ index. 

 

So far the dollar dumping has been brisk but orderly.  It begs the question: Is the 7819-level in the US$ index just another number, or will it open the floodgates of dollar selling i.e. real cascading lower? (Those gates haven’t been exactly sealed over the last few months we must admit.) 

 

No doubt the dollar is oversold.  But it’s moving in line with the news—bad news about the US economy.  It’s seems the sweet spot of the trend when even the consensus gets it right for a while. 

 

Usually we see some type of bounce after so many one-way bets are established.  It’s normal for a market to shake off riders, or shakeout weak hands.  But an all-time low has a way of changing the dynamics of the game.

 

New lows embolden those that are in the trade, leading them to add more.  And it can force capitulation on the part of those who aren’t already in the trade, those who’ve been waiting for Mr. Market to play some shakeout.  Capitulation, coupled with swelling confidence on the part of those that have been “right,” makes up the selling pressure creating the cascading (spiking) downward move in price. 

 

It can become a runaway self-reinforcing trend, leading to a significant overshoot downward in the buck to a level that far exceeds any real fundamental weaknesses in the US. 

 

If the cornerstone of modern portfolio theory was accurate, it would tell us that rational investors wouldn’t fall for this—it wouldn’t happen.  But the fact is market participants are not rational.   They may approach seeming rationality during so-called “normal” times.  But they become increasingly irrational during critical price moments.  They revert to their own mean, which is measured in fear and greed.  Fear of loss, greed for gain, and one other motivator—fear of missing out on another big move; they want to participate with the crowd.

 

So, the setup is ripe for a big move lower in the buck thanks to a key number—7819.  Hmmm…19!  Is it bad karma for the dollar?  We’re not sure.  But at the very least, it probably represents a selling rationale as good as some we’ve heard about lately. 

 

Have a great weekend! 

 

 

Jack Crooks

Black Swan Capital

 

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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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Wed 18 Oct
12:30 US- Housing Starts & Permits
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Fri 20 Oct
12:30 CA- Retail Sales & CPI
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  • 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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