USD 02 (Oct 09 - Sep 10)

[winston]

Are you learning anything new from the USD "experts" ? If not, you still do not know where the USD would be heading ..

=========================================

Dollar faces 'crosswinds': BIS report

LONDON - The US dollar faces 'crosswinds' as some of the extraordinary market developments that fuelled the currency's sharp appreciation in the second half of 2008 fade or even reverse, the Bank for International Settlements (BIS) said.

BIS said in its quarterly report on Sunday that several factors helped fuel a surge in the dollar in late 2008 -
1) safe-haven flows,
2) unwinding of dollar-funded carry trades,
3) a shortage of dollars in the global banking system due to a spike up in dollar money market rates, and
4) squaring of overhedged positions by non-US banks and institutional investors.

The dollar is still drawing support as non-US banks continue to write down the value of their dollar assets and so have to hedge that exposure, and there is still demand for dollars in foreign exchange swap markets, the BIS said.

However, as markets continue on the road to recovery this year, the dollar is back under pressure.

Investors are once again borrowing cheaply in dollars and using those funds to buy higher-risk and higher-yielding currencies and assets in so-called carry trades, and safe-haven inflows that boosted the dollar in late 2008 have reversed.

'Looking ahead, the factors reviewed ... make for crosswinds for the dollar,' the BIS said.

'Safe haven flows that favoured the dollar have been reversing. Carry trades always defy measurement, but such positions, with the dollar as a funding currency, are thought to be increasing, putting upward pressure on higher-yielding currencies.'

The dollar recently hit a 14-year low against the Japanese yen at below 85 yen and a 16-month low against the euro at $1.5145 per euro, coming under broad selling pressure from investors confident that US interest rates will remain ultra low well into next year.

But there are still tailwinds for the dollar, the BIS said, noting a premium on dollars in foreign exchange swap markets.

Non-US banks continue to write down dollar assets, albeit at a slower pace, which should offer the dollar support as these institutions adjust their hedges.

The dollar rallied broadly last week after the Bank of Japan said it would offer extra liquidity to banks in a bid to fight deflation, contrasting with the Federal Reserve and European Central Bank, which are both in the early stages of withdrawing their extraordinary policy measures.

The dollar's recovery was given an extra boost on Friday by the latest US employment figures which showed far fewer jobs were lost in November than expected and a surprise fall in the unemployment rate.

The BIS also said that in the current environment of low US yields, the dollar was vulnerable to big swings in asset prices and volatility.

'In particular, when equities fall, risk appetite shrinks and volatility is increasing, dollars are bought by both types of investors, as in late 2008,' the BIS said, referring to carry traders and institutional investors.

'With 'risk on', equity prices rising and declining volatility, dollars are sold by both, albeit perhaps at different frequencies,' the BIS said.

Source: REUTERS

http://www.businesstimes.com.sg/sub/lat ... 38,00.html?

[winston]

Was Friday’s Trading the First Sign of a Carry Trade Reversal?
By Jon D. Markman, Money Morning

Although it’s too early to know for sure, Friday’s action suggests we could be seeing the earliest stages of a carry trade reversal.

Remember that hedge funds and other highly leveraged institutional investors have been borrowing here in the United States at ultra-low interest rates, selling the dollar short, and using the proceeds to snap up stocks, bonds, and gold.

http://www.moneymorning.com/2009/12/07/ ... -reversal/

[kennynah]

/DX has already broken out of a resistance at 75+.... it did so in a very quick and piercing fashion... it could mean the start of a rally for /DX... but as usual...nothing is for sure...

good luck and take care...

[winston]

Dollar May Have Hit Bottom By TheLFB-Forex.com

NEW YORK (TheStreet) -- The U.S. dollar has been in a protracted down-trend since March 2009. However, recent price action on the U.S. Dollar Index (USDX) suggests that the U.S. dollar may have found a bottom just above 74.00.

Since September, the USDX has been trading below a down-trending resistance level. The index rallied to hit this resistance level at the end of September, the end of October and then again at the beginning of December, when it was finally able to break up and move through this level.

http://www.thestreet.com/story/10640249 ... L_atb_html

[winston]

Stansberry: How to fix the U.S. dollar
By Porter Stansberry in the S&A Digest:

How could you fix the dollar? Simple, really. You have to do two things.

First, you'd return the dollar to a defacto gold standard by using monetary policy to target money supply. You'd limit the supply of new dollars to real increases in productivity.

Second, you'd begin to pay a market rate of interest on U.S. Treasury securities.

Without the power to print more money, the U.S. would be, at best, a junk credit. Therefore, you'd expect to see 12% coupons or better on long-dated U.S. Treasury securities. Ha, ha, ha... Right? It'll "never happen," right? Oh yes it will. Sooner than anyone expects, too.

[kennynah]

at best, the above are manipulation of the dollar...the only appropriate and sustainable way for a stronger dollar or any currency is to attract a healthy demand for it....and that can only happen when the country's products and services become in demand...

[winston]

Pimco Says ‘Fear Not,’ Weak Dollar Will Spur Growth (Update2)
By Wes Goodman and Garfield Reynolds

Dec. 9 (Bloomberg) -- Pacific Investment Management Co., which runs the world’s biggest bond fund, said the dollar is poised to fall and the decline may help spur the U.S. economy.

“Fear not the falling dollar,” Scott Mather, head of global portfolio management at Pimco, wrote in an article on the company’s Web site. “A gradually weakening dollar may help heal the U.S. economy” by encouraging demand for the nation’s exports, he wrote.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro and yen, has declined 6.3 percent this year. The currency is sliding as the Federal Reserve keeps U.S. interest rates at a record low, encouraging investors to seek higher yields outside the U.S.

The greenback will maintain its role as the world’s reserve currency, and investors shouldn’t worry that a decline will add to inflation, the report said.

“There are few viable alternatives,” Mather wrote. “No other currency offers the size and liquidity -- not to mention the political and legal stability -- necessary to match the dollar as reserve currency of choice.”

‘Inflationary Impulse’

A 10 percent devaluation in the currency may result in an “inflationary impulse” of 1/4 percent to 1/2 percent in the overall U.S. cost of living, the report said.

“Deflation is therefore a bigger near-term threat than inflation,” he wrote. Deflation is a general decline in costs in the economy.

The Fed cut its target for overnight bank lending to a range of zero to 0.25 percent in December of last year to help the economy snap the steepest recession since the 1930s.

The dollar traded at $1.4706 per euro today, and it was as strong as $1.4668, the highest level in a month, after Fitch Ratings cut Greece’s debt ranking.

Mather’s comments echo those of Bill Gross, Pimco’s co- chief investment officer, who told CNBC on Oct. 28 that the dollar is an over-owned currency and likely to fall to an all- time low against its major counterparts. Pimco, in Newport Beach, California, is a unit of Munich-based insurer Allianz SE.

http://www.bloomberg.com/apps/news?pid= ... ny.J5sdqak

[winston]

Options Traders Bet Dollar to Extend Rally Into March (Update2) By Jeff Kearns

Dec. 11 (Bloomberg) -- Traders boosted bets in the U.S. equity options market that the dollar will strengthen through March amid speculation the Federal Reserve will raise borrowing costs next year.

More than 434,700 calls giving the right to buy the PowerShares DB US Dollar Index Bullish Fund changed hands, nine times the four-week average and 121 times higher than volume for puts giving the right to sell.

“Someone’s making a bullish play on the U.S. dollar,” said Nimit Savani, co-head of derivatives sales and trading at Lighthouse Financial in New York. “It could be hedging to mitigate the risk if the dollar rallies.”

‘Whopping $12.1 Million’

A block of 216,000 calls changed hands at 10:54 a.m. for 55 cents, according to data compiled by Bloomberg.

“The transaction itself cost a whopping $12.1 million to enact,” Caitlin Duffy, an equity options analyst at Greenwich, Connecticut-based Interactive Brokers Group Inc., said of the trade in a report. “The dollar-bull responsible for the purchase is positioned to accrue profits” should the ETF rise 4.7 percent from yesterday’s close to $23.55, she added.

The Dollar Index, which tracks the currency against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, increased 0.7 percent to 76.567. It touched 76.726, the highest level since Nov. 3.

http://www.bloomberg.com/apps/news?pid= ... 49br4jM1uI

[winston]

Dollar to Gain as 10-Day Trend Quickens: Technical Analysis By Oliver Biggadike

Dec. 10 (Bloomberg) -- The Dollar Index may extend this week’s gains, with the 10-day moving average approaching the 50- day benchmark and the euro dropping below its November low.

The 10-day moving average climbed to 75.52 today, just below the 75.6 level for the past 50 days.

“That is a bullish signal for the dollar,” said Niall O’Connor, a technical analyst at JPMorgan Chase & Co. in New York. “The price action for the dollar right now does seem favorable for additional strength.”

The Dollar Index, which tracks the greenback against the currencies of six trading partners, rose 0.7 percent today to 76.577, the highest level in five weeks. The euro, which makes up 58 percent of the Dollar Index, fell below its Nov. 3 low of $1.4626, dropping as low as $1.4586 as traders added to bets the Federal Reserve will raise interest rates in June.

Futures on the Chicago Board of Trade indicated a 47 percent chance the Fed will raise the target lending rate by at least a quarter-percentage point by its June meeting. The odds were 43 percent yesterday. . The central bank next meets to review borrowing costs on Dec. 16

http://www.bloomberg.com/apps/news?pid= ... F3GUJQHZgI

[winston]

Dollar rally starting: A big headwind for stocks
From Bespoke Investment Group:

Since its close on November 25th, the US Dollar Index is up 3.09%.

This is a pretty big move in the currency market, and it has been an important move because it has broken the long-term downtrend that the Dollar has been in over the last six months.

http://www.bespokeinvest.com/bespoke/20 ... trend.html