Forex Trader Top 3: Crude Oil Prices, Eurozone Cashflow, Japanese CPI

Mark Whistler is the founder of and is the author of multiple books on trading. Mark’s newest book, The Swing Trader’s Bible – co-authored with CNBC/Fox News regular guest Matt McCall – will be on shelves in late summer, 2008. In addition, Mark also writes regularly for and

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1. Crude Fair Price: $106.12

The News:

Given the rebound in the U.S. dollar over the past day, the fair price of crude is below the present market price.

The Breakdown

Earlier in the week, OPEC President Chakib Khelil mentioned to reporters that the cartel would not raise production. What’s more, Khelil also commented that strength in the U.S. dollar could help ease the price of oil, indicating every 1% decline in the greenback equates to $4 rise in crude.

Crude hit an all-time high on Tuesday at $119.98, while the euro posted an all time high against the dollar on the same day at 1.6118. Since, the dollar has recovered just over 3%.

The Bottom Line:

Using futures benchmarks with EIA supply data and Khelil’s comments, the fair price of oil is currently $106.12. If the dollar holds ground, oil should ease – slightly – in the next few sessions.

2. Euro Zone Money Supply Slows More Than Expected

The News

M3 money supply clocked in at 10.3% year over year in March, compared with 11.3% in February.

The Breakdown

First, the M3 numbers for March were below the 11.1% economists were expecting, but still far above the 4.5% non-inflationary baseline the ECB prefers.

While liquidity in the Euro Zone is clearly tapering from recent highs, the overall picture remains healthy. Helping to control inflation, EURIBOR rates are currently just over 4.8%, indicating banks are charging a hefty premium to loan money to one another. In real money, banks are charging one another about 4.2% (equating to about 22-basis points) more than last summer.

While that little number might not sound like a ton, when you need $10 million for a night, 22-basis points equal $22,000!

The Bottom Line

M3 shows some hope for a future rate cut at the ECB, as liquidity is clearly slowing with banks becoming exceedingly stingy with their cash. While year over year M3 of 10.1 is above the inflation comfort threshold of the ECB, the decline in M3 shows inflation could be cooling, if even just slightly.

3. The End of the BOJ Carry Trade?

The News:

Thursday evening Japan announced CPI at a decade high 1.2%, inline with expectations, but prompting action.

The Breakdown

With inflation at 10-year highs, the Bank of Japan (BOJ) will need to begin thinking about raising interest rates, something that could hamper carry trade liquidity in the weeks to come. Carry trades occur when one borrows from a low interest rate bank (like the BOJ at 0.5% and reinvests the money where they can get a higher interest rate, like an emerging economy, or developing nation.

BOJ borrowers will likely have extra incentive to pull global money to protectively cover their positions at the bank, if the greenback continues to rally.

The Bottom Line:

While the CPI number will not cause a complete contraction in carry trade cash, emerging markets and developing nations could feel a little pinch in the weeks to come.