Wednesday, May 11, 2011

Why I Won't Support More Bailouts

Finnish 50c euro coin
Timo Soini, the leader of the Finnish True Finns Party had an excellent piece on the topic of European sovereign bailouts. The WSJ chose to edit his article to fit their standards but fortunately the blogosphere caught on to it and published the original version of his article, they even highlighted the places that WSJ edited. Here is a link to the article as it appeared before WSJ got their hands on it.

Tuesday, May 10, 2011

Greece, Drop Dread

Today's rumors and subsequent denials over another bailout for Greece have left a gaping hole in my account and I will be taking some time off to see if this situation cools off. It certainly isn't fun or profitable to trade while politicians are constantly on the wires trying to micromanage expectations of their electorate and/or financial markets. A week's worth of hard work has been flushed down the tubes and I am in no mood to try to anticipate what foolish idea politicians come up with next (only to deny it seconds later) so I am taking some time off.

Friday, May 6, 2011

More Euro Weakness?

The Spiegel story that Greece is considering dumping the euro put more pressure on the euro after a considerable correction yesterday that saw fiber slice through support in the 1.4770 area. Denials by Greece only managed to slow the decline.

Relative strength currency trading can be done either by looking at fundamentals or technicals. Right now the euro has run into some serious fundamental weakness and if politicians aren't able to calm the fears we might see renewed pressure on peripheral debt in the eurozone. In the weeks leading up the the April and May ECB meetings debt problems didn't manage to have a marked impact on the euro's strength.

The declines of today and yesterday suggest this situation could be reversing. The risk here is that if Greece exits, whose next? An exit and a subsequent devaluation would wreak havoc across the eurozone and even beyond. The coming week will tell whether the euro will be able to overcome this patch of weakness. If not, look to be selling the euro, especially on signs of weakness in the sovereign debt market.

Related stories from forexlive (an FX news blog that I follow closely):

How Commodity Weakness Influences Currencies

Following yesterday's ECB press conference where ECB President Trichet failed to mention the magic phrase 'strong vigilance', commodities took a sharp turn down as market participants had overestimated the hawkishness of the ECB head. This was exacerbated by CME's decision to increase margin requirements on silver and to increase the limit size movements of several commodities, including oil which was down over 10% during the session as was silver. The wider CRB index dropped close to 5%. Without digging too deep into the inflation story we can conclude that a sizable portion of the price of several commodities has been purely speculative.

But how will this influence currencies?
Commodities are traded in dollars, a remnant of days past when the US dollar reigned supreme over other currencies. Countries that export commodities such as oil, natural gas, copper, gold etc. receive dollars for their goods. Ten or twenty years ago these dollars might have gone to US Treasuries or other assets denominated is US dollars but with the dollar in a long term bear market commodity producing nations are diversifying away from it. The more dollars they receive for their goods, the more they need to diversify. This diversification has taken the form of buying up euros, Swiss francs, Australian dollars, Chinese yuan, Brazilian real, Canadian dollars, British pounds, Swedish krona etc.

EURUSD in green (lhs) vs OIL in black (rhs), chart from

So as the price of oil goes up, one can reasonably expect an increase in the price of various currencies such as the euro and the Aussie dollar against the US dollar as countries look to sell dollar they received in exchange for their goods. It is important to realize that this is not a one-way street, this correlation works on the way up as well as it does on the way down. In fact the moves on the downside tend to be more violent due to extreme fear and forced liquidation.

So with oil and other commodities down we can expect to see pressure on the euro, the pound and various commodity and carry trade currencies. On the flip side we can expect to see strength on the US dollar and the Japanese yen. This correlation is not 100% so due diligence is still required - ie don't jump into a fiber short just because oil is down.

Tuesday, May 3, 2011

Automating Everything, Twitter Style

I haven't been able to publish a new post for a few days now. This is all down to twitter and their automated suspension mechanism. From the start, I wanted this blog to be syndicated via e-mail, RSS and twitter so people could choose their favorite method of following my posts. However, shortly after creating my twitter account I got suspended (no reason as to why was given to me). I hadn't broken any rules nor could someone say that I was an 'aggressive follower', having only followed three people after creating my account (which is something that twitter suggests you do right after you've set up your profile). It took one complaint and four reminders to get them moving, but considering the experiences of other bloggers around the web (google 'my twitter account got suspended') I would have to consider myself one of the lucky ones. You see, not all account suspension get addressed rendering many accounts useless.

I am left wondering whether the people at twitter really care about this because this doesn't seem to be a particularly fresh issue, it's been going on for a while. I think the coders who work for twitter should take a look at this issue and solve it once and for all. It can't be that difficult. I made sure to mention this in my mostly one-sided e-mail exchange with twitter. I've done my part of notifying them, now it's up to them to fix it.

With my twitter suspension lifted I will resume posting shortly. You can follow my tweets here.