Hi Jay,

Interesting day - didn't trade anything myself as was a bit slow off the mark this morning :roll:

Nice entry on the DGUYDJ strat on cable, Phil, with a clean break upwards out of a 30 pip range, with a good run up then available.

Interesting to note we are now seeing a 123 reversal with trendline break on the daily chart on cable...

Yep - it's an interesting one. Fridays NFP 'should' theoretically have been dollar positive, but the market didn't think so - a bit of volatility and then the $ selling kicked in. Do ya think the market's finally waking up to the phoney numbers created through their models?

And today, we're seeing some short Dollar triggers coming into play. Whether they will prove out, who knows - not me, But it is very much an interesting time scenario.

Someone in China must have cursed me, because we deffinitely live in interesting times.

i had a trade all preped and ready to go if cable broke the asian range this morning, then i got called out on a job got back and it was up 50 pips, bloody sod and his law again :)

This is what I was referring to....

Well, I wonder too...I looked at the NFP release and was surprised to see USD weakening on the back of supposedly 'good' figures. Seemed a bit back to front to me, but I'm no expert.

To me, a bit like news releases for companies, etc, so called good news that doesn't cause a positive reaction means basically bigger bad news lurking in the background. OR, the market is questioning the actual 'accuracy' of the quoted figure (I'm being tactful in using the word 'accuracy' but you know what I mean :wink: ).

Either or both could imply a bigger picture worse picture, to me at any rate.

I'll be looking in early tomorrow morning with a view to selling the dollar if I get a good entry on GBPUSD or EURUSD etc.

Evening all.

Yes, Friday's NFP was odd. A range of 59 pips for an NFP Friday. Must be some kind of record. The volatility has been steadily dropping, but may be today is the start of a change. Over this leg down, its dropped from a average reading of 115 down to 91 at present.

I just had a look at the Metatrader 4 hour chart which says we're not quite out of the woods yet. Price has printed a nice doji straddling the line. Could go either way. The rise between 1 and 2 was BoE minutes if I remember. Shock horror, all 9 voted for a rise instead of 8-1 and did that warrant such a reaction? This rise from the 3 point up doesn’t seem to be data driven at all, just the line of least resistance. Anticipating the next meeting, I guess. Will it break the line? Find out tomorrow.

Hi, your post crossed with mine, Pillinger!

I wouldn't be at all surprised to see price try for 2.0000 again, and what happens then to be pretty critical - either new cable highs or a reversal again :?:

Hi David,

Yes, the market seems to want to float up at the moment, which makes a change. I found this whilst looking around for the short term rates on US T-Bills. Natalie, I guess you have a better handle on this than I do, but does this chart imply the market is beginning to price in lower US rates? Early days, but it does look like it might be rolling over. And did anybody catch this from Tim Congdon today? Crikey …

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/04/cninfl...

David Blanchflower (or whatever his name is) has been an arch-dove ever since his appointment to the mpc and has been staunch in his view that inflation will moderate blah blah blah. That he appears to be starting to switch camps to becoming more hawkish changes the colour of the MPC to being slightly more hawkish, since if they can get him on board after he's voted against most (if not every) tightening decision since he's been a member, then the likely direction for rates is that it will continue upwards.

Bear in mind that credit has been very loose in the last few years, and there's a lot of money floating around to fuel inflation not even considering fuel costs etc (which if the Bell curve theory is to be believed ain't gonna get much better any time soon and may even get worse!).

The whole thing looks to me like an inflationary cycle, and with the 1-3% operating band for official inflation (real is almost certainly much higher) breached and likely to be breached again, I think even he has had to recognise that they can't sit on their derriers any longer and actually have to do something to regain control of the situation.

Sadly - I suspect they will opt for the Greenspan approach and bore us all to death with a 25bp dripfeed. Personally, I'd rather see a more decisive signal of 50bp. IMO - it would at least send out the clearest of signals that MPC are in control of the situation and that they will do what it takes. Equally, further up the line, poeple would modify behaviour and spending habits to accomodate such a stance from a clear signal of that ilk - especially if where not fully effective , followed up in similar manner...

That's what I think, but it ain't gonna happen coz they ain't got ***** to take such an approach.

Percieved wisdom about US rates has for some time been that the Fed has finished it's rises and the next move is probably down.

OK - bear in mind that we're talking about a country that has turned data/statistical manipulation through its modelling systems into a new art form here.

Fed remains between a rock and an an even bigger rock. They've got real inflation far higher (probably at least twice) the official numbers. But it's not good PR to admit that and it doesn't make peple feel good and keep them spending money and keeping the economy wheels turning.

Their job creation model over estimates the numbers of jobs being created giving false readings that create a further feel good factor but don't necessarily reflect reality that well.

Their in Hock up to their eyes and that extends all the way from the administration right down to your average Joe on the street.

They're printing money like it's going out of fashion and have stopped reporting how much they're printing (I can only assume that the atrocious numbers coming out at the end have gotten a lot worse, and it's highly embarrasing to reveal those numbers not to mention inexpedient).

There are a lot more points to take in but there's a few.

I read a report about 18 months ago from Nuriel Roubini that suggested either they would need to hike rates much beyond what we see today, or they would need to takle to deficits through the 'clearing system' which in this case is the currency exchange rate. i.e. the value of the dollar in comparative terms.

Given that the largest inflation experienced is assett price inflation i.e. real estate and so forth, and that your average american is inexorably tied to that I think it will be especially hard for fed to push interest rates too much higher than they are now, and that they will have to favour the clearing route suggested by Mr Roubini.

They just can't afford to prick the housing bubble even though in the passage of time it may simply burst.

So the short answer is I would place the odds slightly more possibly down than up but I'm not expecting anything in the near term.

Brilliant post Natalie. Personally am very weary of the agenda behind rates. The way I see it, one reason the whole world enjoyed low rates and low inflation is down to massive Chinese growth changing the rules of the game. In effect they have bought down prices globally for manufacturing, although in the process has brought commodity prices higher. I am told Next for example has such massive margins by outsourcing production in China, and several other items on the high street sell at margins of 90%!

Anyways times have moved on. Now to suit their own ends people have been changing how we determine inflation. For all you know we could be sitting on 5%+ inflation here in the UK without even realising it. The question is what is being done to counter it? Even by the accepted inflation figure, we are well and truly out of the 2% limit. The less said about house price inflation the better. While its showing signs of tiring in other parts of UK, london is singlehandedly pushing it up, up, up. Is there a bubble? Well, we won't know unless it bursts.

What do the gentlemen of the MPC do? As far as I am concerned they have their heads buried in the sand. Takes you back to the image of the frog in water, if the temperature rises fast it jumps out, while you increase it slowly it will never know and will eventually die in the pan. There are such big ramifications politically of increasing rates for homeowners and business that they are treating rates with kid's gloves. All well and good, but in the meantime house prices are on steroids and as a nation we are borrowing away merrily...

Just my views, others' may differ :)

Happy Trading!!!

Well, I got a long entry on cable this morning around the 1.9930 area I think, and it seems to be dithering about around breakeven. Price has fairly conclusivley rejected 1.99 RN from the high side on the hourly chart today, so I'm going to hold on to this long tester...it didn't quite hit my first scale point, which would have taken the risk out, which is slightly frustrating, but what the heck, daily and weekly charts seem to be lining up for longs, in my opinion, so I'm seeing if I can get anything to stick.......

hehehehehe - it's that damned frog again. hehehehehe. ;)

Excellent post there Blithe. I'm estimating real inflation around the 5-5.5% region, and I agree, it would be much higher but for the China/FE factor.

IMO, the ONLY central Bank that's actually ahead of the curve on all this is Trichet's Gang, and I believe it's because they Don't work solely on inflation, but also target money supply as an major factor in price stability. Basically, they recognise that while loose money supply can be stimulative, Excess money supply inevitably feeds through to being inflationary. By watching that as an important factor in their decision process, they are able to stay in front of the inflationary pressures and hopefully head them off at the pass.

Trichet is also in the happy position of having a C/A suplus rather than deficit within the zone. If these general trends continue, I can see the Euro competing very strongly with the US dollar for the worlds Reserve Currency mantle and potentially overtaking it. It's already nibbling away strongly at the edges.

True Natalie, Eurozone does seem to be in good hands. Personally never had thought about the money supply factor in the decisions but what you say certainly makes a lot of sense. From what I have read before money supply is kind of a snowball type thingie, isn't it? - a small increase can turn to an avalanche simply because it changes hands so often! Thanks for today's fundamental lessons :)

Kuwait de-pegged from the dollar to a basket of currencies, Syria to do so in July, United Arab Emirates said to be next. Not significant economies, but as you say, evidence of a nibbling at the edges. While the Gulf States still sell oil in dollars, it doesn't mean much, but should they decide to sell it in euros, it'll make a bit more of an impact. However, given the reliance of the Gulf States on the weight of US military force in the region, it seems unlikely that they will bite the hand that protects them. Military might matters, and its one thing the eurozone does not have in any coordinated fashion.

True enough for now. The US Empire's stranglehold seems pretty secure for the time being. But what about the scenario that one or more of the more fundamentalist states does go ahead and set up a bourse denominated in Euros? Might it not seem rather attractive to other producers to peddle their wares in a much more stable currency even if only some of it? And Not all producers are based in the gulf region. Norway, UK, Nigeria, Canada and so forth? Then there's Russia with 25% of the world's Gas reserves? (a related issue)

On a different note. 250 yen for the pound? a real prospect or merely a pipe dream?

hi all,

have been away and not posting. hope the pips have been good with you.

i have been on top of euryen lately and unfortunately missed today :roll: was on holiday all last week, taking a nice short from 164.00 (when it just touched it (wednesday 23 may, i think), took a good 100 pips on it, and drove to france.

got to say that shorting euryen gives me the creeps. i prefer to buy the dips :mrgreen:

wonder if a reversal is on the making or we will just have another nice ride dow to give more buying opps. my news provider had a lot of rumours of carry trade unwinding (supposed recommendations by Morgan Stanley and Citi)

good evening

g

Every time there's any kind of dip they all cry - 'carry trade unwinding!'.

The more marginal and recent possibly given the levels of gearing involved, but there's a massive amount of money tied up in this story and IMO they havn't even scratched the surface.

As to how long the carry trade can live - I would answer that the carry trade will start to seriously unwind only when rate differentials no longer favour such activity either through (more serious) shrinkage or elimination.

The Japs have little sense of urgency in their rate journey while recipients continue to rock and roll in their respective (inflation) quests. SNB are in a tough spot and have little room for manoevre right now, so they're not in too much of a hurry either.

The caveat in that is major shocks in respective domestic markets be they stock related or commodity based. Despite the volatility in some, as long as the longer term trends remain in tact (refers to currencies too) I would think that real serious evidence of unwinding activity would be sporadic and ellusive, while evidence of further gearing up remains evident in the rises.

I doubt the journey will be particularly smooth from here though as this has become a very mature story. how much more there is to give - no idea, but I'm not betting against it (except in circumstances that warrant). I'm certainly not prepared to call a top (or bottom) of any market, but it doesn't stop me exploring possibilities within clearly defined risk boudaries. ;)

Agree with Natalie totally, like I have said here before several long serving traders have made a career out of carry trades - and I don't mean retail traders either. The sheer potential of borrowing money in a zero-rate currency, to invest in a high(er) yielding one, especially when the former has a CB that keeps it as weak as it can get away with, is just too alluring to those traders. Where is the pain barrier? I think the real pain for people will come if USD/JPY goes near 100, but that's easier said than done.

Also on that note, things like

"Central Banks selling USD"
"Rumours of an option strike at so and so level"
"Chinese CB doing xyz"
"Carry trades being unwound"

to my mind these are all half-truths that are always true to some extent :) but do they provide enough reason to make money out of the markets? In my opinion not, so I hardly bother with them when people who report on the markets for a living use that as the reason for why spot moved a big figure or two. The one exception I have noticed is when a certain theme is the order of the day, when tout le monde (and that doesn't mean I am French!) focuses on one story, like "Interest rate differential", which in the past has been happening on certain legs on the USD selloff through the last few years. That again may just be finding a reason for why there is a trend in the first place! Not saying at all that fundamental analysis isn't good, some people make tons of money on that - just have a problem with these half-baked, free "reports"!

And Natalie, about 250 GBP/JPY, who knows? Certainly won't bet against it myself :wink:

Chris Gaffney writing for the daily Pfennig reported today,

"Data released in the US yesterday morning illustrate the very troubled waters the FOMC have steered our economy into.

Reports showed US worker productivity slowed while labor costs climbed. President Bush's economic advisors also cut their forecast for US growth in 2007, reflecting a slower economy in the first quarter of the year. So the US economy continues to slow while inflation pressures continue to build. Rising energy and commodity prices will continue to feed back into consumer prices keeping the Fed from lowering interest rates. But the US economy is going to continue to slow down and may slip into negative growth if / when the housing crunch filters back down into the general economy. So what can the FOMC do but sit on the sidelines and hope the US economy somehow finds its own way out of these dangerous waters. Look for Bernanke and his buddies to keep rates unchanged at their meeting the end of this month. "

Kinda echoes what I said earlier about the US economy...