Dec

1

It is interesting that there is no comment on currencies with respect to the dollar. Are there any specs that trade currency?

For months the dollar vs. G7 has been at vol. lows with very little activity. Just as the so called “experts” like BCA and Goldmans for example, started putting forth dollar bullish views, and the COT data analysis started showing that specs were record long EUR and GBP … and just as technicians were pointing out that the Dollar Index was at 10 year lows and should bounce, and the fundamentalists were pointing out that with economic growth slowing around the world the dollar would strengthen because it is a counter-cyclical currency … just as all this evidence was on balance pointing to the probability of the dollar strengthening — it then breaks out, giving us the strongest move in years from the GBP, which is making 15yr highs.

I wonder if the much talked about central bank diversification is not taking place (United Arab Emirates for example still has 98% of its reserves in USD, yet has targeted a 50% USD holding), and if currencies like the GBP are quietly becoming the new safe havens.

With vol. picking up and the outlook for rate cuts in the US to begin in June, the carry traders must be feeling pretty uncomfortable. So too the ‘commercials’ who have been buying dollars since April this year. The Fed fund futures are now pricing in a 70% probability of three .25% rate cuts starting in June next year. One of the more interesting currencies right now is the CAD which is weakening along with the dollar. This has got to do with the US government’s decision to change the taxation policies on Canadian Trusts. This will manifest itself in CAD weakness, as billions will now flow back out of these trusts to wherever they came from.

Larry Williams answers:

I trade the dollar index as well as currencies. There have been several great plays in the current market. The easiest is to be long the Australian Dollar or British Pound against the Swiss Franc or Japanese Yen.

Commercial activity and seasonals have a heavy influence in these markets… at least that is how I see it.


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