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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Vosilla who wrote (87540)	10/10/2007 3:51:49 PM
From: Real Man	Read Replies (1) \| Respond to of 110194

It's the basic carry trade - the dollar moved down slowly only because BB raised rates faster than the Europeans. Pound is high because their rates are high. All commodity based currencies are high because of high oil. OZ have very high rates too, but Canada doesn't. So now as Ben moves to cut, the same force (400 trillion notional) that supported the trade deficit all these years is moving against the dollar. As rates in other countries rise beyond US rates, this bunch will start betting on the fall of US bond market, but not yet. As rates go down, they will bet on the rise of the long bond, which has nothing to do with worsening economic conditions or an impending recession. Vigilantes are dead. Carry traders, on the other hand, rule the currency market. Why, and does this make any sence? The answer to the second question is it doesn't, cause the carry trade largely ignores the printing, unless its outrageous. The answer to the first question is 400 Trillion notional. Unless the derivative bomb explodes, carry trade will continue to rule the forex. The unknown is the behavior of USD "investors", the CBs. Once they dump dollars, the carry trade is likely to implode. But.... that's precicely the reason they don't do it!