Turbulence Ahead
Pinank R. Mehta
The last week closed with the US$ very strong. On July 23, 2004 the learned Bloomberg News (and other similar agencies) opined "The dollar rose against the euro, for its first weekly gain in six, on speculation the Federal Reserve will raise interest rates at a faster pace this year than investors expected." A simple question now arises - IS THE BOND MARKET SLEEPING AT THE WHEEL IF THE RATES ARE GOING TO BE RAISED AT A FASTER PACE? This implies violent moves in the bond and currency markets!!!

Or is this a short squeeze on the US Dollar shorts put out by the hedge funds globally? How much further will this go and how will it impact the commodity and the currency markets?

The million $ question is of course how will the Asian Central Banks (stewards of the RELATIVELY undervalued currencies)intervene in the bond and the currency markets to protect their economies, whose prosperity is largely derived from selling goods to a bankrupt buyer?

Last week the major US indices closed below their 200DMA and this may unleash a storm unless Fairy Godmother PPT steps in and buys futures furiously in say the next two days. A related question is whether the programme trading wizards will jump into the fray with the help of their sophisticated computer programmes.

We are heading into "interesting times" no doubt.

Ladies and gentlemen, please fasten your seat belts since we are hitting air pockets and the ride is likely to get very very turbulent.


Pinank Mehta is a director with Métier Capital Management Pvt. Ltd. advising on wealth management. He can be contacted at métier@bol.net.in

India, July 27, 2004

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