Nov 1, 2004

Follow the bouncing ball

As the USD bounces this morning, I am thinking a bit about just how crowded that short is. I am not sure I have ever seen a trade in 10 years that is so widely believed in. Even I believe in it. Because it is crowded though I will watch carefully as the DXY (Dollar Index) approaches that 87 level. I will also consider other shorts against Asia (like GBP/JPY) before getting into dollar positions.

Also, the Reserve Bank of Australia, ECB, and Bank of England all have meetings this week. The election is distracting a lot of people but these meetings are significant because both Australia and Britain nearing the end of their rate hikes. At the turning points the markets will focus on nuances to see what to expect next. And of course the FOMC meets next week for what should be its last rate hike for a while.

Mostly I am looking through the election because it is ungamable. The candidates will only make subtle differences to the markets and even a tied election will eventually get resolved. Life will go on pretty much the same as it is today.

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