Weekend Thread

Kyoto, Japan

Maybe Evan can get us a new picture of "The Path of Bamboo" on his trip :)

Hope everybody has a safe and relaxing weekend!

Do currencies say "risk on"?

One way to examine the global appetite for risk is to compare the relative prices of currencies. Rather than looking at prices based on the US dollar (USD), let's look at a "risk-on" pairing of the Canadian dollar against the Euro. My reasoning is that Canada, along with Australia, are resource-rich countries that do well when the global economy buys their stuff. Lately the Canadian bond market has seen a lot of money going into it, not as a carry trade based on interest rates but more because it is a safe haven with a so-far sound financial system, so I'm picking canucks over ozzies today.

Here's a simplified 6-month chart; sorry for the useless vertical scale but my free version of StockCharts has the Euro multiplied by 100:

The foreign exchange market has the CADEUR cross pair nicely above the 60day average that is in blue, and far above the 200-day average that is in red. Zooming out to a 3 year time horizon we get:

The pair is at an all-time high, just blue sky above. This tells me that the global risk parameter is set way far in the "on" position. This can be worked in at least 3 ways:

1) Go into the FX market and trade the cross. Expect the bid/ask to double because your broker wants to make extra money off you.
2) Use ETF's, long CAD and short EUR, to create a synthetic form of this currency trade.
3) Use it to inform your overall trading attitude.

I hesitate to advise you to go long or short because when a chart is in the nose-bleed territory it is ripe for a reversal as well as for a continuation. What I hope to contribute here is a quantification of the general feeling I've been getting from the market since early July - long is favored over short.

Friday morning

I looked at a bunch of charts trying to find something juicy for you mugs.  But there wasn't much that looked like a buy right now.  On the other hand, there wasn't much that I wanted to short.  A bit of market pullback would probably provide some better setups.

So you get a cat, lol.