Tuesday, August 14, 2007 0 comments ++[ CLICK TO COMMENT ]++

Two Important Currency Charts

I consider the following two charts to be some of the most important charts to watch. They are the currency charts of the US$ index and the Yen index.

If the stock market goes into a correction, I expect the Yen carry-trade to unwind. So that's something we should watch for.

If the US$ rallies during a correction, it likely means capital flight to safety. Contrary to some people's opinion, the US$ is still the safest currency around. A sharp rally in the US$ will likely result in corrections in emerging markets as well. Not only will capital fly away from the unsafe emerging markets to the safe US$-denominated assets, but an impetus will also be provided by the fact that returns in foreign markets in US$-terms will not be so attractive. The decline in the US$ in the last few years has meant that American investors had an incentive to shift capital to foreign markets.


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