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     Dec 22, 2005

Daily Forex Commentary
By Jack Crooks

Key News
Housing affordability in October sank to its lowest levels since 1991, according to the National Association of Realtors' Affordability Index. (WSJ)

Key Reports due Thursday (WSJ)
8:30am: November personal income. Consensus: +0.4%. Previous: +0.4%.
8:30am: November personal spending. Consensus: +0.4%. Previous: +0.2%.
8:30am: Initial jobless claims for the week of December 18. Consensus: -9K. Previous: +1K.
8:30am: November Conference Board leading indicators. Consensus: +0.5%. Previous: +0.9%.
10am: DJ-BTM business barometer for the week of December 11. Previous: -0.4%.

Quotable
"God bless us every one! said Tiny Tim, the last of all."
- Charles Dickens

FX Trading
Being mostly dollar bulls this year, and despite the run on the buck of late, we believe there are good reasons to start looking for a rally in the euro/dollar.

Yield differential still large but possibly narrowing: the US yield curve might still be the best guide of what to expect from the US economy. It's hinting slowdown ahead.

  • Housing affordability is taking a bigger chunk from Mr Consumer. Housing inventories hiking up rapidly.
  • Headline CPI moving back in line with core is where we are leaning. Despite the fact that we don't have "demand destruction", crude prices are stable and could fall from here; based on our look at the charts. Boone Pickens thinks $50 oil is in the cards before any rally can get underway - sounds good to us.
  • Real income remains stagnant while debt levels continue to into the ozone

    • Europe may surprise on growth as well as rates:

  • Maybe we are seeing bottom-up micro growth in Germany - the kind of growth that snuck up on the experts in Japan.
  • The ECB did it once. If they have any validation, no matter how thin, they may just do it again.

    This game is played at the margin and it's at the margin that we see the US fraying and Europe coming together.

    In short, if expectations for a slowdown in the US continue to build - the chorus call of recessions growing louder - while Europe improves even ever so slightly, that may do the trick for the lowly euro - the currency that was king this time last year.

    The euro/dollar downtrend is still clearly intact. But as you can see in the chart, the five-year T-Note futures and euro are tracking downward together. Thus, we let the yield curve be our guide.

    • Black Swan offers a subscription-based currency advisory service for forex and futures traders.

    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

     
     


     

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