Australian Dollar Ends 10 Day Winning Streak Ahead of RBA Rate Decision (page 2 of 2)

The Question for Carry Traders is Can the Dow Rise Further

Profit taking in the Dow has triggered profit taking in the Japanese Yen crosses or carry trades. Since the Federal Reserve cut interest rates on September 18 2007, the stock market has increased just shy of 800 points from a low of 13360 to a high of 14155 yesterday. On a point basis, this move has been significant especially since it has taken the Dow to all time high above 14,000. On a percentage basis, it is only slightly more than 5 percent. With carry trades moving in lockstep with the US stock market, the burning question on everyone's mind is How Much Further Can it Rise? After the Fed rate cut interest rates last month, we talked about how the S&P 500 sees gains on average of 12 percent. From September 18, which was the first time that the Fed cut rates this cycle a 12 percent move puts the S&P 500 at 1650 and the Dow at 14950. Based upon history alone, the Dow may have far more room to rise.

Euro: Traders Nervous About Verbal Intervention

The Euro fell by the largest amount in over a month on speculation that the European Central Bank will be forced to verbally intervene in the currency this Thursday. An article in the Financial Times talked about the recent the discontent amongst European politicians and exporters on the impact of the strong currency on foreign demand. ECB officials have been relatively quiet about the Euro's strength which suggests that they are still trying to figure out themselves whether or not to address the currency's recent movements. They are leaving it to Trichet who has the big task of figuring out if the risk to growth is greater than current inflationary pressures.

Weaker Economic Data Continues to Drive the British Pound Lower

Weaker economic data continues to weigh on the British pound. Construction sector PMI dropped from 64.8 to 60.3 last month. On the heels of the Northern Rock debacle, Nationwide consumer confidence is not expected to be firm. Tomorrow we have service sector PMI. This is expected to follow manufacturing and construction PMI lower. The focus for the UK will be on Thursday's monetary policy meeting. There is a slim possibility of an interest rate cut and even if the BoE forgoes lowering rates, the markets will be watching for whether a monetary policy statement is released.