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Fresh back from vacation in the Sunny Caribbean – here are some trades that I like off the bat:
1) Short AUD – After last week’s disappointing GDP, retail sales, service and manufacturing PMI reports, there is no chance the RBA will be talking about another rate hike this evening. The last time we heard central bank governor Stevens speak, he was crystal clear in saying that the current level of interest rates is appropriate. He also indicated that the next rate hike may not be until mid next year. Last week’s dismal economic reports served to confirm that not only is now not the right time to continue raising rates, but it would be smart to let investors know that the RBA is officially on hold until the U.S. and/or Chinese recovery gains momentum. Now of course, the U.S. has its own problems so even though I am bearish Aussies against the U.S. dollar (AUD/USD now @ 0.9875), I particularly like shorting Aussies against the Japanese Yen (AUD/JPY now @ 81.65).
2) Short CAD – Same story in Canada. Even though there was an increase in employment last month, it was all in part-time and not full-time work. If this shift becomes a continuous trend, it would suggests that companies are growing concerned about future business activity. Back in October, the Bank of Canada downgraded their growth forecasts and last month the BoC warned that they could intervene in their if there was extreme movements in the currency market. As a result, with USD/CAD trading just a tad above parity (USD/CAD now @ 1.0070), I think that the BoC will remain cautious, warning of the downside risks that will impede them from normalizing monetary policy. There is a good chance that USD/CAD will be trading back above 1.02 before the end of the year.
3) Short EUR – European sovereign debt problems have not gone away and despite the weak U.S. NFP report, traders have resumed their sale of euros. All eyes are still on Spain and Portugal and this is not likely to change anytime soon. EUR/USD is currently trading @ 1.3270 and I am looking for another move into the 1.30 handle.
If you can’t tell – I am bearish risk. Good luck trading.