US Dollar about to explode HIGHER???

[DaxDestroyer]

Just read an article in my Buddy's blog about the Carrytrade. Found it highly interesting, and would like your views on it. :clap:

Here the link:

2008 … will the carry trade unwind now??? | Riding the DAX


Talked to him some minutes ago. He sees 1,35 on the Euro by June.


I want to bet against him

Does it make sense?

Cheers Carlos

 

[Atilla]

Just read an article in my Buddy's blog about the Carrytrade. Found it highly interesting, and would like your views on it. :clap:

Here the link:

2008 … will the carry trade unwind now??? | Riding the DAX


Talked to him some minutes ago. He sees 1,35 on the Euro by June.


I want to bet against him

Does it make sense?

Cheers Carlos

Hi DaxDestroyer,

On a fundamental level no it doesn't. Gold is up, dollar is down. Euro is up. Yen is up imo.

On a technical level yes. Based on my chart we are at record highs and some breathing space has to be given to the Euro if we are to compete in World markets.

In fact I would go far as to suggest 1.28 based on my charts. We are already below my DEMA 22 on the weeklies so it's only a matter of time and MACD confirms this move imo.

If we breach 1.4250 then we are certainly heading down below 1.40. Would like to see more confirmation and a change in the direction of my MAs first though.

 

[DaxDestroyer]

Hi DaxDestroyer,

On a fundamental level no it doesn't. Gold is up, dollar is down. Euro is up. Yen is up imo.

On a technical level yes. Based on my chart we are at record highs and some breathing space has to be given to the Euro if we are to compete in World markets.

In fact I would go far as to suggest 1.28 based on my charts. We are already below my DEMA 22 on the weeklies so it's only a matter of time and MACD confirms this move imo.

If we breach 1.4250 then we are certainly heading down below 1.40. Would like to see more confirmation and a change in the direction of my MAs first though.

Thanks mate

1,28? I think, many people commit suicide if it goes there. So I better don't bet against him

Rather look out for a pop to buy puts then :whistling

 

[TWI]

Been thinking about this quite a lot myself but since I have so little faith in the dollar despite the need for investors who sunk so much their needing to buy to cover margin. I prefer to buy Yen. Have prefered that for quite a while and started too early for sure but I think in macro picture it makes sense.

 

[Trader333]

1,28? I think, many people commit suicide if it goes there

Why ?

Also much of the forex transactions are not speculative in nature with countries using exchanges to buy and sell goods as well as pay foreign employees etc. So in my view it is less likely to behave in the same way as other, almost purely speculative, instruments but I am curios to know other peoples views on this ?


Paul

 

[DaxDestroyer]

Why ?

Also much of the forex transactions are not speculative in nature with countries using exchanges to buy and sell goods as well as pay foreign employees etc. So in my view it is less likely to behave in the same way as other, almost purely speculative, instruments but I am curios to know other peoples views on this ?


Paul

Compared with real money flows based on goods and services, speculative trading is only around 20 times the size without derivatives

 

[grantx]

DaxDestroyer,


Your friend says the yen will weaken because rates can’t go lower. If rates are so low they can only rise (or stay where they are). In itself, this will not weaken the yen.

Why not borrow USD and invest in Euro? US rates are more vulnerable vs Euro rates (doves vs hawks).

Continuing expansion of the EU will provide support for the Euro and the Euro bond and equity markets.

The diversification from dollar denominated holdings (especially by the Gulf states, Russia and China) to Euro denominated will support the Euro.

How much have European (eg German) investors lost on their US investments when translated to Euro terms? Far greater than the US markets decline. Falling markets plus falling currency equals a double hit.

Grant.

 

[zambuck]

Apparently there is going to be a rethink on Foreign Exchange forecasts according to Peter Graham in FT.

Until now the assumption was that the higher the countries interest rates, stronger it's currency became as investors sought greater returns from yields.

Now the traders will have to rethink. Some strategists believe that the countries that cut the interest rates should be rewarded with higher exchange rates.

The pattern of currencies benefitting when central banks raised the interest rates and weakening when monetary policy was eased held largely true last year.

The IMF for the first time instead of stating ' continued fiscal consolidation' has changed its long held view. Strauss Kahn now says that just a simple monetary policy of reducing interest rates will not end the turmoil and is now endorsing a 'fiscal stimulus package' and has called for other countries to follow the suit.

Indian Finance Minister agreed and said that India will have some room to stimulate domestic consumption. It would seem that Monetary Policy has its day and a new method of Fiscal Stimulation is on its way.

It would be interesting to see what happens to the Exchange rates in the meantime.

 

[Trader333]

Some strategists believe that the countries that cut the interest rates should be rewarded with higher exchange rates.

It doesn't matter what strategists think it will ultimately all come down to supply and demand as always in my view.


Paul

 

[fibonelli]

In a deflationary depression the US$ should rise as did the Japanese Yen in the 1990s.

The theory is that deflation is a decrease in the money/credit supply. Therefore, this should increase the value of the remaining US$ compared with other currencies.

 

[zambuck]

Could you please eloborate as to how 'supply and demand' becomes and issue in the theory of 'Fiscal Stimulation' of an Economy..?

 

[zambuck]

In a deflationary depression the US$ should rise as did the Japanese Yen in the 1990s.

The theory is that deflation is a decrease in the money/credit supply. Therefore, this should increase the value of the remaining US$ compared with other currencies.

...Yes...

 

[Atilla]

Apparently there is going to be a rethink on Foreign Exchange forecasts according to Peter Graham in FT.

Until now the assumption was that the higher the countries interest rates, stronger it's currency became as investors sought greater returns from yields.

Now the traders will have to rethink. Some strategists believe that the countries that cut the interest rates should be rewarded with higher exchange rates.

The pattern of currencies benefitting when central banks raised the interest rates and weakening when monetary policy was eased held largely true last year.

The IMF for the first time instead of stating ' continued fiscal consolidation' has changed its long held view. Strauss Kahn now says that just a simple monetary policy of reducing interest rates will not end the turmoil and is now endorsing a 'fiscal stimulus package' and has called for other countries to follow the suit.

Indian Finance Minister agreed and said that India will have some room to stimulate domestic consumption. It would seem that Monetary Policy has its day and a new method of Fiscal Stimulation is on its way.

It would be interesting to see what happens to the Exchange rates in the meantime.

This is essentially a dual management of the economy... Monetary supply side management and Keynesian - fiscal - demand side management.

The problem is little ol uncle Bush is giving tax breaks without tax rises continuing to spend like no tomorrow whilst reducing interest rates. This will not address the fundamental structural problems of the US economy.

Hence, buy gold and sell the dollar.

 

[grantx]

Zam,

“higher the countries interest rates, stronger it's currency became as investors sought greater returns from yields.” Doesn’t a higher yield imply greater risk/uncertainty – sovereign, political, economic, fiscal?

“countries that cut the interest rates should be rewarded with higher exchange rates.” Tough if your an exporter. What about interest rate parity? What about forwards – how would these be valued?

Strauss-Kahn, etc. So the Euro-Socialists can strengthen their grip over the capitalist system, and the US Republicans resort to socialist practises when capitalism falters (as does the UK). And the tax-payer is sold down the river.

As Paul says, the markets will decide.

But the US will still need to finance its massive budget/trade deficits. Can’t hope to sell it’s bonds unless it compensates by higher rates/lower prices. But then we come up against the problems of the first paragraph.

Grant.

 

[zambuck]

“higher the countries interest rates, stronger it's currency became as investors sought greater returns from yields.” Doesn’t a higher yield imply greater risk/uncertainty – sovereign, political, economic, fiscal?
Yes that was the way things were before this crisis...
“countries that cut the interest rates should be rewarded with higher exchange rates.” Tough if your an exporter. What about interest rate parity? What about forwards – how would these be valued?
This is something that needs further discussion and hence the article in FT. The way things are for any country in recession with inflation going higher, cutting of interest rates will not solve the problems. It is will require a positive action by global economies. Otherwise it will be the same - US sneeze and other catches cold. Take example of BRIC. None of these catches cold when US sneeze.
Asian crisis of 90's was a classic example. That dragged down the whole world into a recession, and Japan had to deflate the economy. Now things are different - BRIC are sitting on a massive foreign currency reserves, and there are more direct links with currencies and exchange rates.
Strauss-Kahn, etc. So the Euro-Socialists can strengthen their grip over the capitalist system, and the US Republicans resort to socialist practises when capitalism falters (as does the UK). And the tax-payer is sold down the river.
Well the tax payer HAS been sold down the river. The rescue package for NR is Taxdpayers money. Is it not amazing that a problem of US has been exported here in UK and then a rescue package is coming directly from our pockets. Would we like to do this again?
As Paul says, the markets will decide.
Well when left to markets to decide - What happened? You can't leave everything to markets. Today’s announcement for direct action by BOE is one such action that must be in place. And FED is already investigating the 'Banks' embroiled in mortgage landings. Free Market Economy can work - but to an extent.
But the US will still need to finance its massive budget/trade deficits. Can’t hope to sell it’s bonds unless it compensates by higher rates/lower prices. But then we come up against the problems of the first paragraph.
The point of the matter is that I do not want to be part of a US mess as a Tax Payer. If they create the mess then they pay for it. Not me. Not Europeans. After all no one here will foot a bill to cure a mess created in China for example.
But if there is a global rescue plan in case any major economy grinds to halt then it is something that needs to be explored further.
IMF has spent its entire existence telling developing world to devalue their currency to qualify for a loan. Now things are different.
Perhaps they should start telling US and UK to do the same when their economies stagnate. I wonder if UK and UK would even listen!

 

[zambuck]

Here are the figures of US Economy....worth $15 trillion, 24% of world economy.


Economy Growth
Growth could be around 1.5%.


Inflation
It is above 2%. Oil has pushed this figure up higher.


Unemloyment
Unemployment is higher than it was at the end of the last boom in the l990s.


Budget Deficit
Projection ranges from +5.5% to -4.5%. US Congress has moved quickly to agree a $150bn temporary stimulus package to help boost economic growth. Fiscal Policy


Falling Dollar
Interest Rates cut to 3%. Monetary Policy
Dollar has fallen against major EU Economies.
Dollar is less attractive to investors
Weak dollar would boost US inflation enev higher as goods become more expensive.


The major economies and markets must agree a system of exchange rates and dealing with the problems of US economy as part of Fiscal and Monetary Policy, jointly to resolve the imbalances.

A proactive response rather than reactive response to markets.

Markets don't care a hoot about tax payers.

 

[hrokling]

From the charts it looks like the EURUSD is going to explode through 1.50 anytime now - could the USD tank another 1.000 pips this year...