Tagged: DXY

Predictable Outcomes

It was 85 degrees Sunday in Denver when Karen and I rode up local landmark Lookout Mountain on bikes to pay respects at Buffalo Bill’s grave. We woke to snow Tuesday.

Speaking of hot and cold, we told clients to expect a good start Monday for the new quarter, followed by the strong likelihood of a big move Tuesday or Wednesday as imbalances from the quarter exited broker-dealers. The Dow was down more than 100 points intraday Tuesday.

Why are these outcomes predictable?

In answer, ever heard of Mexican film maker Alejandro Gonzalez Inarritu and writer Guillermo Arriaga? The duo sadly parted ways after making Babel (Brad Pitt, Cate Blanchett), the third film following Amores Perros (Benicio del Toro) and 21 Grams (Naomi Watts, Sean Penn) with disparate threads woven into haunting themes on life and meaning.

Markets have recently given us disparate threads that can be loomed into predictive thematic raiment. Rumblings continue about the dramatic BATS Exchange IPO debacle March 23. The market-structure bugs at Zero Hedge advanced a theory that a deliberate algorithmic tactic torpedoed the IPO. (more…)

Follow the Cash

Headline at 2:34 p.m. Eastern Time today: “Fed Pledges Low Rates Through 2013.”

How many recognize this as a currency-devaluation? Markets jumped 4% here in the U.S. as the DXY, the dollar index, dropped.

Last Sunday, the European Central Bank pledged to monetize debts of Italy and Spain. Monday, markets plunged globally. That’s a currency-devaluation. The central bank is promising to increase the supply of currency without a corresponding increase in economic output.

Most blamed S&P’s downgrade of US debt. But the dollar strengthened, and Treasurys increased in value. Why would the diminished instruments be more valuable?

Because that’s not what caused markets to tank. (more…)

Why IR Pros Need to Love Some Math

Scheduling note: I’m in Miami Friday for a panel discussion on trading realities for the NIRI Senior Roundtable. Hope to see you there!

Today is the anniversary of Pearl Harbor. Near the end of WWII, my great uncle, Jack, was one of 316 sailors from 1,200 aboard the USS Indianapolis to survive its sinking and days in shark-ridden waters in the south pacific. Tough fellows, those guys.

On that happy note, let’s turn to everybody’s favorite topic: math. Click here for an example of math in action, a chart showing the spot market for the US dollar, called the DXY, and the Dow Jones Industrial Average, the past three months. The two juxtapose like the mirror image of a mountain in a still lake on a clear day. Wherever one goes, the other is equally opposite. (more…)