fxmatters

• January – the EUR/USD has depreciated (i.e. USD gained) in 8 of the last 10 years, the average euro decline being 1.2%.
• January – two RBNZ moves in 8 January reviews—both +0.25% to 5.25% p.a.
• 17 January 1936 – “guns or butter” is coined when Joseph Goebbels tells the German nation that “We can do without butter, but despite all out lover of peace, not without arms”.

Like most years, 2007 reminds us that currencies are volatile and that debt matters. These will again be key themes in 2008, especially the latter here in NZ. Thanks to those who helped with fxmatters in 2007. The next posting will be 21 January 2008 … Read Lessons of 2007

• 23 December 1913 – the Federal Reserve Act establishes the US banking system of 12 regional Federal Reserve Banks (owned by private sector banks in each region), the overseeing Board of Governors of the Federal Reserve System, the policy-setting (by majority) Federal Open Market Committee (includes the 7 Board members and 5 rotating regional Presidents), and various advisory councils.

The Reserve Bank forecasts growth to be much the same in the next 3 years as the last three. And inflation to continue pushing against the 3% upper target band. As a starting point this suggests the NZ dollar repeats the very broad sideways trend evident since 2004. But then shocks can occur … Read When things don’t stay the same

• 4 December 1871 – Germany goes on the gold standard and adopts the mark as its unit of currency.
• 7 December 1854 – Louis Pasteur says “remember that in the fields of observation chance favours only those minds that are prepared” – the same applies in trading.
• 8 December 2005 – RBNZ raise the cash rate to 7.25% but temper their hawkish comments; the NZD drops 12% by 31-Mar.

Making money with NZD put options has not been easy. Over 80% of 6-month NZD/USD put options with a strike price 3 cents out-of-the-money would have expired worthless in the last three years, in spite of some large NZD falls at times. But that does not give the full picture. There were also times when enormous returns were possible. Spend $5000 on an NZD/USD 9c out-of-the-money put option in July and it could have been $80,000 in August. Some people did. There were also many weeks when opportunities were presented to at least double your money … Read Positioning for the new year

• 28 November 1988 – Robert Maxwell is quoted in Time as saying “money you haven’t earned is not good for you”.
• 2 December 1836 – “the almighty dollar” coined by the Philadelphia Star Ledger is not apt now (although the original quote was to money as an “object of worship”).
• December – the EUR/USD has continued the trend of November in 15 of 20 years; the trend in Nov-07 was up.

The key to future exchange rates is the extent of US subprime home loan losses. At present expectations are building for the worst, at least within the US, and are showing as a weak USD. The next wave of sentiment could prove more positive … Read Coming to the end.

• 21 November 1995 – Dow Jones Industrial Average tops 5000 for the first time. The market has not been so positive this November, being 4.6% down in 3 weeks.
• 22 November 1967 – Silver exceeds US$2.17 per ounce. Silver last week retreated sharply from over $15/oz.
• 25 November 1947 – NZ formally becomes independent from Great Britain—the NZD remains fixed to the GBP.

The NZD is being swept along amidst three major global forces at present, all of which have the potential for significant volatility ahead … Read Three of four forces in play