Global Macro Trading Journal
- Thread starter Daal
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Not sure about NOK being undervalued, but I do think it's cheap, given the fundamentals. As to papers on the subject, there's quite a lot. I'd suggest that you start by looking on the Norges Bank website for the latest Monetary Policy Report. They normally talk quite a bit about the currency, if I remember correctly. And yeah, I like NOKJPY, for a whole variety of reasons that I might have mentioned earlier in this thread.Quote from dhpar:
thanks for the sympathy.
indeed. it is truly amazing considering that by any trade measures NOK is the most undervalued currency in the world (maybe except SGD/BND), it exports mostly to EUR countries, is the richest country in the civilized world, has one of the highest quality of living, low inflation, relatively high interest rates and still manages to shelter its currency.
i guess the reason why european politicians are not so vocal about this is that norway's trade surplus is mostly exchange rate inelastic, i.e. surplus will stay about the same whatever the exchange rate is. this is due to a huge proportion of hydrocarbons in exports. therefore the exchange rate is really more bound with NOK money supply and management of domestic inflation - more so than in other countries. thinking about this now again - is anybody aware of some academic paper on this topic?
p.s. Martinghoul you really got some balls with NOKJPY trade - is there a more volatile pair?
Well, is that still the case now, where the sovereign's fiscal situation is so much more important? I mean, over the medium term, would you really want to be long USD, rather than NOK?
in the longer term not really...and that's not how you manage asset allocation in any case. i said i need to have some assets in europe - and as far as i know US is not part of that.
btw i hate USD. almost all the fundamentals are as bad and in some cases worse than that of EUR. The US has one advantage of being one country, a reserve currency and therefore safe heaven in times of heightened stress. but look at the performance - it is flat with respect to EUR basically all the time too.
then there is the thing about what if EUR solve their problems. then USD is fucked while NOK fundamentals get better as energy prices go up.
again by the same argument it makes more sense to own loonie if you want to have assets in america - and cover black swan risk of EUR going volcano via options in whatever asset class.
Well, the CHF strength lasted until July. EU problems did not start affecting other markets until August and September (when stocks and then PMs collapsed). So the prior strength does not indicate any decoupling, and the latter weakness was either due to correlation with Euro problems, or SNB intervention alone, most likely a bit of both (since CHF sold off significantly before SNB intervention, and has dropped another 7-8% since the end of the intervention).
Also, if you look at NOK, SEK, GBP etc, there's a clear pattern where EU worries (i.e. Euro stock declines) correlated to declines in these non-Euro European currencies. If these periphery currencies were not linked to Eurozone weakness, then there would be no such correlation and in fact they might strengthen on haven flows. After all, no one thinks the central banks there are going to intervene like the SNB did, yet the currencies are still drifting lower.
So, if this correlation continues, further EU problems will send the peripheral currencies lower against the dollar. Best then to be long dollars vs Euros if you are a bear on Eurozone prospects.
This is interesting: http://www.bloomberg.com/video/82844550/
It's very unusual to see Mike Platt on TV, as he normally doesn't go for publicity (neither does Alan Howard).
It's very unusual to see Mike Platt on TV, as he normally doesn't go for publicity (neither does Alan Howard).