Monday, February 28, 2011

Rise and Shine: Feb 28, 2011

8:30 GMT

FX :

Dollar GMT time falling 7 straight hours and consolidating as UK/EUROPE opens up.
  • USD/CHF Feb 25, 2011 from comments on my last post; the early sell off on last Friday I amount to buyers of the CHF closing out short positions. This morning CHF sell off amounts to
    • Laggards from friday
    • increased short term risk apettite
Or some combination of the both. I will lean towards increased risk appetite as the dollar as a whole dropped significantly in the past 8 hours. However, this will only be true if UK/Euro and NY trading hours continue the trend.
  • The GBP/USD has been seeing quite a bit of volatile ranges from Asian to UK hours which is quite unusual for the pair. Uncertainty about growth probably have not been fully priced in. 
  • EUR/USD is rocketing up pairing back losses  from Friday. 
  • Stay tuned for CAD GDP
  • AUD/USD still inline with my previous comments, holding above parity as a norm, at this rate the break will be big to the upside. Hopefully fundamentals don't trump this pair. 
  • USD/JPY seems to forming a bottom. 

  • the weakness in the dollar floated April Brent up to around 115 around 4:00 GMT but as since then pulled back to 1:00 GMT levels to about 113.  
  • Currently WTI to Brent spreads have been unusually large in its historical context. As stated by the EIA, arbitrage opportunities are much easier for WTI premiums vs. WTI discounts (due to logistical supply issues in cushing). 
  • EIA cites three possible longer term arbitrate solutions that may work under much wider spreads
    •  rail shipments of crude out of the region 
    •  new pipeline links
    • higher refinery output for exports to other regions
All three solutions require market participants to truly believe the current spreads are more structural and long lasting. Each solution entails either high transaction cost, economic inefficiencies, or logistical headaches. 


This week I am looking for:

Dollar -
Crude +

10:00 GMT
Dollar Index March Contract: 76.935
ICE Brent April Contract: 113.24
WTI April: 98.66


Alexander Lê
Managing Partner
Analyze Capital LLC

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