|
|
|
|
Daily
Forex Commentary
By Jack Crooks
Key
Reports due Wednesday (WSJ)
8:30am: September housing starts. Previous: -1.3%.
Quotable
"Nature's admonition to avoid the dice altogether ... Everyone who bets any
part of his fortune, however small, on a mathematically fair game of chance
acts irrationally ... The imprudence of a gambler will be the greater the
larger part of his fortune which he exposes to a game of chance." - Daniel
Bernoulli, taken from Against the Gods by Peter Bernstein
FX Trading
Warning: you dollar haters - and you know who you are - might experience some
slight indigestion from this report.
Other than the fact that the euro is tanking against the US dollar (yet still
grasping a thin reed of support) the level of open interest (red line in the
chart below) appears surprisingly lame. Does it tell us anything?
Maybe it says there are still plenty of quiet dollar bears holding out hope the
dollar will begin its long-term decline into oblivion. After all, there are too
many "structural problems" facing the dollar - "it must decline" still seems a
deep-seated belief among many players.
No matter how much one believes something, it doesn't guarantee it must happen.
And in a world where prices are still driven by real people, acting in both
rational and irrational fashion (not sure how we distinguish between rational
and irrational when it comes to investing), and where the actions of each
player ultimately impact on future expectations - George Soros refers to this
as "reflexivity" - forecasts or beliefs can be dangerous places to hang your
hat. The participants' perceptions are inherently flawed, and there is
a two-way connection between flawed perceptions and the actual course of
events, which results in a lack of correspondence between the two. I call this
two-way connection "reflexivity". - Soros Nowhere is
"reflexivity" better dramatized for all to see than in the currency markets,
assuming one can attempt to discern with some perspective instead of clinging
to a story.
The dollar demise story, which not coincidentally mirrored the peak in the euro
during late '04/early '05, is the best current example of "flawed perceptions"
we've seen in a while. The arguments of the dollar skeptics are well
known: they mostly revolve around America's record current account deficit of
more than 6% of GDP, which is widely viewed as unsustainable.
Hence, the argument goes, central banks and private investors would start to
shed dollar assets at some stage in the search for another reserve currency.
Given the size of the euro area's economy and financial markets, the euro is
widely seen as the leading contender for the next reserve currency. However, as
I see it, rumors of the imminent death of the dollar as the leading reserve
currency are grossly exaggerated, for several reasons. - Morgan
Stanley economist Joachim Fels. (Our emphasis) The reasons,
according to Mr Fels:
(1) Reserve currencies don't lose their status that easily.
(2) Large-scale currency diversification is difficult for dollar-peggers.
(3) The euro is not a glaring alternative.
(4) Diversification into risky assets may benefit the dollar.
"Fears of a dollar crash due to currency diversification are overblown."
Thank you Mr
Fels!
Jack
Crooks has actively traded in
global equity, fixed income, commodity, and
currency markets for more than 20 years. He is
president of Black Swan Capital, a currency and
commodities market advisory firm -
BlackSwanTrading.com
|
|
|
|
|
|
|
|
 |
|
|
|
|
|
All material on this
website is copyright and may not be republished in any form without written
permission.
© Copyright 1999 - 2005 Asia Times
Online Ltd.
|
|
Head
Office: Rm 202, Hau Fook Mansion, No. 8 Hau Fook St., Kowloon, Hong
Kong
Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
|
|
|
|
