risk aversion is rising and rising risk aversion is dollar exchange rate favorable

Foreign Exchange Outlook : The USM service sector report is due today, probably a drop to 42 or the lowest since the index was invented in 1997. We also get the ADP Macro forecast of private sector jobs ahead of Friday’s critical payrolls report. This is oddly not much on the radar screen yet, even though on Monday the DJ Newswire reported a median estimate of 200,000 jobs lost. Potentially disturbing is a story in the WSJ asserting that Paulson is thinking about asking for the other half of the 700 billion in TARP money authorized by Congress. Originally his idea was to leave half of it for the incoming Obama administration. He would act next week if he acts at all (he leaves for China today or tomorrow, a wasted trip if ever there was one). This raises the question of what Paulson knows that the rest of us do not.

We hate to say it, but if stocks are down today, that implies risk aversion is rising and rising risk aversion is dollar exchange rate favorable. Bah. This is no way to run a currency market. With average daily ranges shrinking and little directional guidance, we have to expect a breakout at some point - but probably not today. We may have to wait for Friday’s payrolls for that, unless tomorrow’s rate cuts do the job.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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