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A whole new world Good morning from Montevideo, one week into 2008, it is clear that the FX market is a very different place than it was this time last year. Then, the overarching consideration was whether to be or not into carry trades. Today, the theme driving the markets are much more macro in nature. One theme that we highlighted into 2008 start was the adjustment currencies needed once is was clear that global growth was slowing down in a meaningful way. News in the past week and the subsequent price action in markets suggest that this theme is beginning to get some traction. On the news front, a sub 50 ISM and a jump in the US unemployment rate (to 5%, a 2 year high) have significantly increased concerns about a US recession. And this is what is driving the markets right now, FEAR, and every time FEAR takes the wheel, a lot of damage is made. For example look at the Dow Jones, historically January was a very good month for stocks, yesterday was the 8th consecutive day the Dow falls, and don’t even ask about carry trades, you know the answer. The high correlation between the Dow and Carry Trades is still here, and it appears to be throughout all 2008. There is no US data scheduled for release today, so the same trends are going to hold until tomorrow, and maybe if we are lucky we will get filled in the GBP/USD trade. I am really looking forward for tomorrows rate decision in the UK, I have a hunch…. Maybe not, let just leave it like this.
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