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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: nspolar who wrote (10911)	12/15/2008 10:08:34 AM
From: John Pitera	1 Recommendation Read Replies (2) \| Respond to of 33421

Hi Falcon, if a have one enduring perspective that I adhere to is that Currency Markets Drive All other Global Markets. And the big Macro-Driver of Currencies is the Interest-Rate Differential between different currencies. I posted that conclusion at the start of this little thread. This is also coupled with the slope of the yield curves in all the various currencies as currency forward rates are determined by the forward pricing of the the interest rate differentials of the currencies. If rates are 500 basis points different between 2 currencies looking 5 years into the future, it applies downward pressure on the lower yielding currency and upside pressure for the higher yielding one. An additional important item is that currency markets and arguable most markets over time spend 80% of the time in trading ranges and then will have a directional move up or down based upon a the "price discovery" conclusion which reaches a consensus. As Stocktrash started to talk about a couple of weaks ago and as I have then mentioned USD is now the low yield currency, if the FED where to cut 75 basis points,( which not going to happen, in my opinion) our short rates would be 5 basis points below the YEN..... The US Dollar carry trade..... The Pound Sterling is still weak against the Euro and we'll probably see parity, as London and New York where both the big time creators of the vast portion of the *Great Era of Structured, Synthesized and Securiturized Products* ... the SIV's, the CDS's, CDO's et al......... Since we price all other markets in currency terms, and the USD has now finished it's Massive over shot against the Eur, AUD, NZD, CAD, and several additional currencies, we should be seeing a bid for markets such as crude. And Low and behold Crude is up a couple of bucks today. I am thinking that commodity prices will not fall as fast as the USD, and that means that they are going to go up, if that makes sense. Global Demand is still low, China and India is still weakening so it's not total visability. It is interesting to watch the ongoing correlation between Crude and the EUR. That will decouple at some point, but until it does. Global Macro Managers are looking at all of these Trillions of US Dollars that are being created and so the USD has pressure to the downside. As I have pointed out the FED can Monetize assets and debts until the cows come home for dinner and/or the USD starts to plunge... U.S. policy makers are flooding the world with an extra $8.5 trillion through 23 different plans designed to bail out the financial system and pump up the economy. That's very USD bearish. Let's watch for new fundamentals that will be coming along, and The Russians are sending Warships to Cuba, after having them at several ports of call in South America. Interesting, It's disconcerting, I'll follow this with a post with some currency insights that are making sense to me this morning. Hope everyone is having a Good week, John