Posted by: jhamon | January 20, 2010

MysteryHedgie: Perfect Storm Lifts US$

The US$ is being boosted by a perfect storm today: the Mass. election, which in theory slows the pace of US deficit spending; renewed fears of Greece’s instability; and the “momentum element” of increased participation by “black boxes” with the €’s clean break below its 200 day moving average. 

As the $’s strength spreads beyond the € to EM fx and elsewhere, the dampening effect on commodity prices (gold especially, which we see challenging December’s lows of $1075 shortly) reinforces the idea of risk reduction in EM….Whether money redeploys to US equities (the “pause”) or into bonds (the “tradable setback”) will be determined by the US 2/10 yield curve (below)…. Flattening (position unwind) is negative for risk assets generally; Sub 1130 SPX requires more defensive thinking…. 

Keep an Eye on the Yield Curve for Clues


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