Sometimes your sniffer just tells you something isn't right. I was going to write it at the time, but didn't, so you will have to trust me (or not) on this one.

But when I watched the USD trading show strength in the USD through midnight, I was figuring there would be a positive (i.e., less negative) international trade deficit reported at 8:30am ET this morning. Then the yuan story broke, and the USD immediately turned to weakness.

I wrote at that point that the yuan story was probably an ill-founded speculation, but I was thinking that it was probably a well-timed fabrication that was intended to trap USD bears (like me) right before a positive trade report, which would strengthen the Dollar.

Anyway, I thought about it, even if I didn't write about it. Instead I wrote that: "The skinny is that the capital market this early morning is the wackiest I have seen for several months. Today will be a good one to be especially vigilant for rumors, dekes and head fakes."

I think that yuan story was a classic fake-out. The trade deficit was significantly down, and the USD significantly stronger after the report was released at 8:30am ET. (See below)

In the mid-80's I used to cover some exempt market clients in Connecticut from my office in Toronto. These particular traders had come to me for advice in gold. I had introduced them to a new gold promoter by the name of Robert Friedland, and to technical analyst Ian Notley. The latter lived nearby in CT.

In any event, these were some heavy duty gold traders who were most impressed with my contacts and grasp on gold markets at the time. It just came to mind that one day one of them asked me to hold the phone because "Rockefeller" was deplaning his helicopter in the backyard and the noise level was too high to enable further talk. Anyway, one day I got a call to ask if I thought, with the report of a labor strike at a major gold mine in South Africa, that gold purchases were in order.

I told him that (i) when the national TV news makes a bigger deal of something than the Bloomberg writers, I suspected something was wrong, and (ii) when the USD was then bottoming and gold bullion then peaking, I doubly suspected something was wrong.

Let's just say I was right. There are a lot of games being played when big money is on the line, and if "Skeptic" isn't your middle name, you are likely to be taken for a ride.

I had that same gut feeling this morning re the yuan/USD/gold. You never know, of course, until the prices play out.

My antennae tell me that today is going to be an interesting day in the capital markets. Veerrry interesting!

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8:32am 05/11/05: U.S. March trade gap narrows 9.2% to $55.0 bln

By Greg Robb WASHINGTON (MarketWatch) -

"The U.S. trade deficit narrowed unexpectedly in March on a surge of exports of capital and consumer goods and farm products, the Commerce Department said Wednesday. The deficit narrowed by 9.2% in March to $55.0 billion. This is the lowest level of the trade deficit since last September and the largest monthly decline since Dec. 2001. The narrowing of the trade gap was unexpected. The consensus forecast of Wall Street economists was for the deficit to widen to $61.2 billion. The trade gap in February was revised down to $60.6 billion compared with the initial estimate of $61 billion."