Daily Forex Commentary
By Jack Crooks

Quotable
"Because programming content needs to be filled and research reports must be written, a variety of institutional and cultural pressures make gurus profess to knowledge of the markets that no one can possibly have. Every morning they are expected to look at the future when, much of the time, they are merely misreading the present. The endless and often random oscillations of the stock market can make every market observer's ruminations seem right or eventually right. And on the occasion they may be wrong, they are never in doubt." - FJ Chu

FX Trading - A warning from Dr Doom
In the background we are seeing growing concerns that a major correction in global asset markets may be brewing. Long-time international market guru and free-thinker Mark Faber told Bloomberg on Tuesday: "In the next few months, we could get a severe correction in all asset markets.'' Faber added: "In a selling panic you should buy, but in the buying mania that we have now the wisest course of action is to liquidate."

What's the key concern? I think it's all about liquidity. There is still plenty of liquidity, or money, floating around the global markets. But often when markets become highly leveraged - ie many investors borrow more than they normally would in order to take advantage of big bull moves as we've seen - it only takes a slight decline in liquidity, or available money, to tip the balance and force liquidation among many players at once - they rush to exit at the same time. This is why small incremental changes "at the margin" can have a surprisingly large impact. And it can lead to a sharp and deep correction that would otherwise not make sense based solely on the market fundamentals.

Over the near term, any major correction in global markets might be good for the dollar because US fund managers have a ton of money invested offshore. If a decent piece of that money rushes back onshore to hide in short-term cash deposits, it would likely boost the buck. That could surprise. Another surprise that could flow from a global market correction is a big rally in the Japanese yen against all the major currencies on an unwinding of the yen carry-trade.



Stay tuned. If Faber is right, a correction could be very swift and deep because there is a whole lot of money out there being held by people with very itchy trigger fingers.