Forwarded Article 5 Reasons Why the Dollar Could Continue to Fall: 1. Dollar Carry Trade Overused but not Overplayed The primary reason why the dollar is weakening is because of the overused term "dollar carry trade." However although it is overused it is not overplayed because we have long said that how the dollar performs will depend upon where the Federal Reserve stands compared to the rest of their peers. Last week, the Fed reaffirmed their steady as she goes mentality by leaving the FOMC statement virtually unchanged. The Fed is very happy with the way things are right now and are not in a rush to unwind Quantitative Easing. In contrast, the central banks of Australia, the Eurozone and even Japan are much more likely to continue "deloosening" monetary policy. We still believe that the U.S. central bank will be amongst the last to raise interest rates and for that reason, the dollar carry trade should remain intact. Back in October, we published this chart of how close the market believes each of the major central banks are to raising interest rates and for the most part, it still applies. 2. G20 Pledges Continued Stimulus The latest reason why the dollar is falling is because of the G20's pledge to provide ongoing stimulus. More stimulus is positive for the equity markets which in turn has helped to lift the EUR/USD and other risk trades. Over the past 2 years, there has been an 80 percent correlation between the S&P 500 and the EUR/USD. As long as members of the G20 are not paring back stimulus, high yielding currencies should outperform the U.S. dollar. Source: Bloomberg 3. Geithner Avoids Talking about the Dollar Treasury Secretary Geithner also avoided talking about the U.S. dollar at the G20 meeting. Typically, good old Tim likes to take this opportunity to reiterate the U.S.' strong dollar policy and his failure to do so may be more than just a careless mistake particularly in an audience of countries who hold massive dollar reserves and are fidgeting about the continued weakness of the U.S. dollar. It is no secret that the U.S. only pays lip service to its strong dollar policy. In a low inflation environment such as today, a weak dollar helps more than it hurts the U.S. economy. 4. Economic Fundamentals Friday's non-farm payrolls number indicates the tough economic environment in the U.S. The unemployment rate has climbed above the psychologically hobbling 10 percent mark to 10.2 percent as job losses continued for the 22nd month. Millions of Americans are out of work and could have a tough time finding work over the next year which means that we could be facing a particularly weak holiday shopping season. Unless the U.S. labor market turns around, the impressive GDP growth that we saw in the third quarter may not be sustained. 5. Little Technicals Support Finally, there is little technical support underneath the dollar. Taking a look at the dollar index, 74.93 is the 14 month low and the index is trading just above that. If this level is broken, the next major point of support is not until 71.50. For the EUR/USD a break above 1.5060 opens the door for a move towards 1.55 and for USD/JPY support is at 87. Futures trades have also trimmed their bets on dollar weakness which means that a break of support levels could encourage a wave of new short dollar positions. Source: Bloomberg -- You received this message because you are subscribed to the Google Groups "BETTER PERSONALITY GROUP" group. To post to this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/better_personality?hl=.
5 Reasons Why the Dollar Could Continue to Fall:
Shenoy Investment & Fin. Cons. Pvt. Ltd Wed, 11 Nov 2009 05:45:52 -0800
