The Mighty Greenback

August 8th, 2008 2:42 pm | by John Jansen |

The dollar has surged dramatically against the Euro and registered more modest gains versus the Euro. I think a top is now in place for the Euro and the comments by Trichet yesterday were the catalyst for the crash of the Euro.The market action reflects the economic fundamentals away from the US. Economic data released in Europe and Japan recently are reflective of economies slowing quickly and even tipping into recession. The central banks in each country have yet to respond to the changed set of circumstances and the economic weakness which has derived from the global credit crunch.

In addition the crash of oil and gold has some suggesting that the bull market in the commodity market has been broken. If so there are many short the dollar against commodity currencies such as Australia ,New Zealand and Canada who will soon be seeking cover.

Longer term the US faces some very severe problems. (All declining empires do.) In the short and intermediate term though, it looks as though the policy response to the credit crunch on this side of the ocean have been more meaningful and more decisive than that of the ECB. That policy advantage by the Federal Reserve should give the dollar breathing room for the next 12 months or so.

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  1. 7 Responses to “The Mighty Greenback”

  2. By S on Aug 8, 2008 | Reply

    Circling the drain (bowl), a little longer is not the making of a strong buy.

  3. By John Jansen on Aug 8, 2008 | Reply

    Let me ask this question: Would you be long the Euro here or the Yen? I agree wholeheartedly that 3 years or 5 years from now the dollar will be a bunch weaker. But when I put my trading hat on and look at the landscape in front of me it seems to me that the dollar is the better buy right now.

    I will dip into irreverence here and refer to it as the Dollar Promiscuity Trade. You dont have to love it you just have to like it for a metaphorical hour!!

    The PC police will probably arrest me but it is a great analogy!!

  4. By Stuart on Aug 8, 2008 | Reply

    Mohamed El-Erian, co-chief executive officer of Pacific Investment Management Co., said the U.S. government’s efforts to support Fannie Mae and Freddie Mac will lead to greater Treasury issuance and a weaker dollar.

    “It’s ultimately inflationary as long as the global economy doesn’t collapse,” El-Erian said in an interview on Bloomberg Radio.

    “The most important aspect of the dramatic collapse in the euro dollar is the absence of confirmation from other markets,” said David Woo, global head of currency strategy at Barclays Capital Inc. in London. “None of the typical drivers of the euro-dollar in the past couple of years could have accounted for the magnitude of this move, which leads one to conclude that this is a technical-driven move. From that point of view, we do not think that this move is sustainable.”

  5. By anon on Aug 9, 2008 | Reply

    “Let me ask this question: Would you be long the Euro here or the Yen? I agree wholeheartedly that 3 years or 5 years from now the dollar will be a bunch weaker. But when I put my trading hat on and look at the landscape in front of me it seems to me that the dollar is the better buy right now.”

    Bingo! People have started to realize that the rest of the world has as many problems as the United States. I would probably take the dollar long term over both the Euro and the Yen (the U.S. has a growing population and a more flexible economy).

    Add in the fact that the whole world is short the dollar, and the potential for a significant rally becomes obvious.

  6. By John Jansen on Aug 9, 2008 | Reply

    I concur.

  7. By Stuart on Aug 10, 2008 | Reply

    Ask David Walker about the future of the dollar. $62 Trillion in unfunded liabilities. Those are ALOT of trees.

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