British pound daily...looking toppy!

5-wave structure and "bear flag"?

gbp daily.bmp

Greenspan Says Current Account Gap May Begin to Fall

``We may be approaching a point, if we are not already there, at which exporters to the United States, should the dollar decline further, would no longer choose to absorb a further reduction in profit margins,'' Greenspan told the Advancing Enterprise 2005 conference in London today. At the same time, ``U.S. exporters' profit margins appear to be increasing, which bodes well for future U.S. exports and the adjustment process.''

Allan Greenspan 4 Feb '05

Euro 60-min...

1.3037 resistance...for now...

euro 60-min.bmp

euro 60-min

13037 resistance on the top side...so far

The Fed's Trip to Neutrality Could Use a Roadmap

Caroline Baum Bloomberg 4 Feb 05

...Shepherdson expects the Fed to proceed with caution -- 25 basis-point moves -- until the funds rate gets to 3.5 to 4 percent. That ``stopping point'' is based purely on ``long-run averages of real rates and growth,'' he says.

With trend productivity growth shifting up in the late 1990s, ``I'd expect the neutral growth rate to be higher,'' Shepherdson says.

What the Fed does with the short rate affects a whole host of financial variables. Even though the relationships are inexact, ``financial variables lead GDP,'' says Henry Willmore, chief U.S. economist at Barclays Capital Group.

Things like the slope of the yield curve, stock and housing prices, the dollar, credit spreads: ``All of these variables became more stimulative last year'' as the Fed raised short-term rates, Willmore says.

The yield on the 10-year Treasury note ended 2004 at 4.22 percent, about where it began. Bond yields and other financial variables ``can diverge from the funds rate for a while, but eventually they come into line,'' Willmore says. ``When they turn, it may not be gradual. The actual tightening of financial conditions can be abrupt,'' as it was when the stock market bubble burst in 2000.

At that point, the Fed might have to get in the fast lane on the road to neutrality.

Position Summary 3 Feb '05

Position Summary 020305.pdf

Aussie futures 60-min stop leve Issue #94 IR

da6 60-min stop.bmp

Aussie spot 60-min w/stop level Issue 94 IR

aud 60-min stop-loss.bmp

Crude Head & Shoulders...updated

This chart was orginally posted back on Jan 26th...the resistance level held...fyi

crude h & s.bmp

Aussie vs. Gold: Catchup time?

Watching the metals for some validation on Aussie move...

Aussie vs Gold.bmp

Aussie spot w/daily retrace levels

aud daily fibs.bmp

Aussie futures bounced on a retracement number...

da6 daily fibs.bmp

Gold daily...breaking down

First support near $413; then $404...

gold daily.bmp

Euro 180-min...back and forth from overbought to oversold

Euro trapped in a range...roaming from overbought to oversold...

eur 180.bmp

Aussie spot....

7730 still a key support area...

$-yen daily targets

jpy ew daily.bmp

Aussie futures 180-min chart

Though we hung onto this position by a thread after yesterday's A$ rally, the daily technicals still appear promising.

Attached is a 180-min chart showing a "favorable" Elliott Wave count. You can see 5 waves up--which within the bag of Elliott's black magic, should be followed by three correction waves down.

You can also see at the bottom of the chart that price momentum is clearly declining.

da6 ew 180.bmp

Position Summary 2 Feb '05

Position Summary 020205.pdf

China factory orders speed up...but

Factory output speeds up again

The Standard February 2, 2005

Mainland manufacturing activity in January rose at the fastest pace in three months as companies expanded output to meet rising domestic and export demand, a survey of purchasing managers showed.

...Prices of oil, steel and coal continued to climb in January, though the pace of input price inflation slowed for a fourth month to the weakest level since May. Slower inflation contributed to the first decline in average manufacturing output prices since the survey started last April.

Separately, the mainland is set to remain a net importer of steel for years to come despite the rapid expansion of its steel industry, experts and state press said Tuesday.

China imported 29.3 million metric tons of steel products in 2004, down 7.87 million tons year on year.

No change expected from the Fed today

We expect no change. We think the FOMC:

• will repeat that the stance of monetary policy remain accommodative.

• will view the risks to sustainable growth and price stability as balanced.

• will continue to signal that policy accommodation can be removed at a measured pace.

• will signal that it will respond as needed to fulfill its obligation to maintain price stability.

Brown Brothers Harriman 2 Feb '5

China landing?

A Soft Landing Is Difficult to Achieve but Still Possible

It is more difficult now to achieve a soft landing as the investment excess is much greater than one year ago – i.e., it needs more demand to satisfy the existing capacity to achieve a soft landing. A soft landing is still possible, but requires creative policy actions by the Chinese government and some luck, in my view.

The most important external factors are the dollar and the US economy. The worst combination for China would be a strong dollar and a weak US economy. The best combination would be a stable dollar and a strong US economy. The latter would cool hot money flow into China but keep China’s exports relatively strong. This scenario would give China the most room to achieve a soft landing.

Andy Xie Morgan Stanley 1 Feb '05

Swiss franc futures 90-min chart

sf6 90.bmp

$-Swiss 90-min chart

chf 90.bmp

Position Summary 1 Feb '05

Position Summary 020105.pdf

$-Swiss 180-min chart...hitting resistance

chf 180.bmp

Black Swan Global Macro Advisor

Deflationary pressures and China could spell trouble for metals and comdols.

GMA FS 020105.pdf

Australian dollar daily chart update

A series of lower lows on the rallies and momentum turning negative from an "overbought" zone.

aud daily.bmp

$-yen daily chart

Only now breaking above downtrend in place since Oct '04

jpy daily.bmp

Japanese yen futures 180-min chart

jy6 180.bmp

$-yen 180 min...hitting some resistance

jpy 180.bmp

Position Summary 31 Jan '05

Position Summary 013105.pdf

Japanese manufacturing chart...

013105 j manufacturing.pdf

UK housing heading lower...

013105 uk housing.pdf

Rubber meets the road on the rebalancing story...

To me, this is where the rubber meets the road on the rebalancing story. It boils down to the critical tradeoff between growth and asset bubbles. A central bank that is fearful of setting its policy rate at the appropriate equilibrium level sets up a classic moral hazard dilemma -- it convinces the investment community that the asset-dependent American consumer has become “too big to fail.” The implication is all too obvious -- a Fed that then perpetuates a regime of subnormal real interest rates. The excess liquidity that such a policy stance creates then provides a powerful incentive for investors and speculators to borrow at the short end of the yield curve and invest in longer duration assets. This, in effect, creates artificial demand for long-dated securities -- compressing yields on riskless assets and pushing the buying into riskier asset classes.

Stephen Roach Morgan Stanley 28 Jan 05

The dollar is undervalued

The dollar is still undervalued.

We have just updated our quarterly fair value calculations. The upshot is that, compared to current economic fundamentals, the major USD index is still undervalued, and, in bilateral terms, is deeply undervalued against the EUR, GBP, AUD, and NZD. EUR/JPY is still the most mis-priced G10 cross rate. USD/Asia is by and large fairly valued. Any prospective pressures to push USD/Asia lower will sow the seed for future volatility.

Major USD index still deeply undervalued.

We updated the major USD index (trade-weighted USD index vis-à-vis the G7 currencies) valuation, where the fair value of the USD is computed against four fundamental variables: (1) relative productivity, (2) relative terms of trade, (3) relative fiscal positions, and (4) the net foreign asset position of the US. Compared to its long run fair value, the USD index is 7.3% undervalued (down slightly from 8.3% a quarter ago), and still hugging the 2-SD (standard deviation) band. Since 1973, the USD index has touched/crossed the 2-SD barrier only two other times: in 1988 after the Louvre Accord and in 1995 when the USD crashed against the JPY. While the major USD index could, in theory, head deeper into undervalued territory, historically that would be an extraordinary event.

Stephen Jen Morgan Stanley 28 Jan '05