Posts from — December 2006

Last time the aussie crossed 100.00 it failed to close on a weekly time frame and collapsed quickly thereafter falling 600 pips the next week, and 44% over the next three and a half years down to 56. After six years of recovery, today AUD/JPY pushes to new highs printing at 93.18, a place it has not seen since right after the crash in 1997. Signs points to higher with the expected continuance of the large yield spread between the two currencies.

The rise of prices in base metals has caused possessiveness and even theft of various common items made of these now more valuable metals. This theft and vandalism, what some call the “Red Gold” Rush, has been hurting basic functions of society. In Italy copper has been ripped off of bridges, train equipment, and tombs. In some cases, like at South Africa construction sites, the crime is organized.

The value of the metal has gotten to the point where it is worth more than the coins it is used to make. This excerpt in from the Wall Street Journal:

U.S. Mint officials said they were putting into place rules prohibiting the melting down of one-cent and five-cent coins. The rules also limit the number of coins that can be shipped out of the country. Officials said they had received a number of inquiries from the public in recent months concerning the value of the metal in the coins and whether it was legal to melt them.

Because of the prevailing prices of copper, zinc and nickel, the cost of producing pennies and nickels exceeds the face value of the coins.

A nickel is 25% nickel and 75% copper. The metal in one nickel costs 6.99 cents. When the Mint’s cost of producing the coins is added, the total cost for each nickel is 8.34 cents.

Modern pennies have 2.5% copper content with zinc making up the rest of the coin. The copper and zinc in a penny are worth 1.12 cents.

The carry trade carries on to 81.00. After falling 1300 pips in from February to May, the NZD/JPY recoups all the losses in the next seven months. In addition, this pair yields the highest of any heavily traded currency pair at 7%. So even if you bought at the very high in February, if you stayed in the trade you come out doing fairly well. Using 10:1 leverage which is a standard amount for many professional traders, you would have earned 70% returns in the last ten months.

Of course if you did not buy at the top, you would be doing much better with capital gains as well as any carry interest generated.

The USD/CAD has been in a channel now since the end of August. We’ve seen it push the top channel line three times and it is now approaching the fourth.
What’s interesting is the similar pattern back in March for the EUR/USD. Remember when it broke out after the fourth time at the top channel line? This may remind you:

We’ve seen patterns repeat in other currency pairs. All of 2005 the Canadian Dollar was the only currency getting stronger against the dollar. Maybe now it will be the one to break down?

November inflation data was published yesterday above expectations.  Although lowering from above 11% earlier this year, CPI came in at 9.9% YoY.  PPI came in at 12.7%.  The most likely response from the central bank will  be to not lower the rates anytime soon.

On a monthly chart the GBP/USD hits a rarely touched thirty year trend line.