May 3, 2010 - The Aussie Crosses are On Fire

1) The Aussie Crosses are On Fire. In the last few days, two of the key foreign exchange cross trades that I have been recommending this year have exploded to new highs. They include the Aussie/yen cross at AUS$0.874 and the Aussie/euro cross at AUS$0.705 (click here for the call). These crosses involve going long the currency of the 'Lucky Country' and shorting the euro and the yen against it to capture a large and widening yield spread. Those who followed my advice to leverage up five times made an absolute killing. The events I predicted months ago came to pass. With one of the strongest, resource fueled economies in the world, the Reserve Bank of Australia has been raising interest rates like a bat out of hell. Unemployment in the land down under is collapsing. In the meantime, Greece's debt problems have blown up into a transcontinental contagion, cratering the euro, and putting the prospect of rate hikes into the distant future. In Japan, the near zero rates might as well be etched in stone as its economy enters its third lost decade. I don't see any reason to take these positions off until we get a big global risk reversal. We have seen two previews of what this might look like, on the days of the Goldman Sachs fraud announcement and the Greek debt downgrade. Remember, the trend is your friend, until it isn't.