Thursday, December 14, 2006
The good news:
Trimming short equity and short dollar risk was the right thing to do.
The bad news:
The remaining equity longs aren't big enough to offset the losses from short equity and dollar positions, taking the since inception P/L fairly deep into the red.
Why has the dollar strengthened so much today? The simple answer is the market has digested the last week's worth of data and concluded that maybe the sky isn't falling after all. Of course, if Voldemorts of the world has decided to pay 1.32 or 1.33 for an infinite amount of euros, this wouldn't have mattered. However, it looks like the sinister bid has been pulled for the time being, and weak dollar shorts are getting chucked out.
Is this the big turn? It's too early to say. It's worth noting, however, that the Citibank technical analysts have gone long EUR/USD again today- given their red-hot performance of the past several months, Macro Man is inclined to follow along by maintaining short dollar risk here.
Adding to a losing position is not Macro Man's cup of tea, so he won't be doubling down on short dollar risk. Nevertheless, he has a sneaky suspicion that there remains a spurt higher in EUR/USD before the end of the year and wants to be along for the ride.
Elsewhere, Goldilocks appears to have the three bears in some sort of figure-four submission hold. Equities are roaring, bonds drifting lower, and FX carry remains uber-bid.
The SNB cut its inflation forecast today but then moaned about CHF weakness. Uh...fellas, do you think there's a correlation there? Tonight's Tankan survey in Japan could prove to be either gasoline or a wet blanket on the en fuego FX carry trade. Tonight will tell the tale.
The sooner Macro Man finishes his work on the 'beta-plus' FX carry basket, the better. However, December means Christmas lunch season, and Macro Man's presence on the desk will be spotty ove the next week, after which he retires for a well-deserved year-end break. Hopefully the carry study can be completed and posted by then. If not, at least it's something to look forward to in the new year!