Key News

- EU Bailout Spurs Moral-Hazard Fears (Wall Street Journal)

- ECB Debt-Buying Sets a Precedent The European Central Bank's decision to purchase the debt of some euro-zone governments, just days after appearing to reject the idea, raises new risks to its independence and its reputation. (Wall Street Journal)

Quotable

In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.

John Galbraith

FX Trading - Monetary Change We Can Believe In?

Now that global central banks are off the one-size-fits-all monetary policy, it's starting to get exciting.

We sent comments to some of our members on Sunday morning, discussing the potential for a euro-carry trade to materialize. Our logic: the European Central Bank will have no choice but to take on crummy collateral in exchange for funding. The result: a lasting slide for the euro.

Some may not want to believe it, but they might as well start.

And recently the Reserve Bank of Australia signaled a definitive pause coming. That was before an Australian economic/business sentiment survey revealed that interest rates may already be pressuring the economy. The second half of the year is expected to hold more RBA rate increases, but don't be surprised if the duration of the pause changes to better accommodate economic fluctuations.

The People's Bank of China - or at least one of its advisers - seems to think the yuan is going to start moving. But the only change I'm willing to believe in here is the one that's already happened - the PBoC's monetary policy statement has changed to include the fact that the yuan will be managed with reference to a basket of currencies. Whether or not that does much to change the yuan's exchange rate remains to be seen.

US Dollar vs. Chinese Yuan: it kind of got exciting there for a couple years.

Keeping with the theme, another change is likely on its way: China's central bank may soon decide to hike interest rates in order to stem inflation. While the move won't have as obvious an impact on China's currency as interest rate moves tend to have on freely traded currencies, the implications it has on China's economy could, and likely will, have an impact on other exchange rates, e.g. Australian dollar.

Australian Dollar vs. US Dollar: quite a dramatic snapback, but why?

That's a monthly chart basically showing the Australian dollar very quickly erased the majority of its credit crunch plunge that commenced in 2008. The most important piece right now is that fact that it's slowing down short of its pre-credit crunch high mark.

Jack and I were just talking about wave analysis this past weekend ... more specifically the potential of this global market optimism on recovery to simply be characterized, when all is said and done, as a Wave 2. What follows is a major hangover that produces Wave 3 which takes prices down through the 2008/2009 lows.

This is long-term stuff, but somebody's got to do it.

John Ross Crooks III Black Swan Capital www.blackswantrading.com