Short Dollar Trade Becoming Very Crowded
Zerohedge's article from this morning tells you all you need to know about how offside the markets are becoming vis a vis the FOMC's policy plans. People can scream to high heaven that the U.S. dollar is toast but that's not the way these things work. We're getting really close to a panic moment where everyone is on one side of the trade, and that trade right now is short dollars.
The reaction to today's FOMC statement is another moment where the market doesn't believe the Fed will continue to raise rates or unwind its balance sheet. But, the market is wrong.
The Fed is going to do both of those things this year. When things get this crazy, that's how bottoms and/or tops are made.
A dollar in free fall with improving balance of trade numbers and an ECB far more trapped than the Fed is is not a recipe for a further collapse of the dollar. It's a silly notion. I wouldn't be buying gold or silver here. Both are telling you that the dollar isn't ready to collapse. And while the market may not like what the Fed is selling, the market isn't going to stop the Fed from doing what its going to do.
With stocks at all-time highs and real estate prices surging the Fed is going to unwind its balance sheet and begin withdrawing liquidity. The lower the dollar goes and the higher stocks go, the more resolute the Fed will be in this.
What is weighing on the dollar right now is not the a collapse in faith in the Fed (though jawboning is having less of an effect) it is collapse in faith in Congress to manage the U.S.'s finances. And that, my friends is what is causing this dollar bearishness.
But, also note, that yields refuse to rise significantly. Because foreign central banks are loading up on U.S. Treasuries, reloading after the last strong dollar wave at lower prices.
Moreover, they are holding these Treasuries onshore, not repatriating them to make them part of their long-term reserves. This is the very definition of preparing for the next upleg in the U.S. dollar. So, that when the dollar bottoms here, they will be ready to dump Treasuries into that strength to defend their currencies from depreciating too much.
Accumulation by Foreign Central Banks is Purely Increasing Liquidity in Case of a Dollar Bull Market
Bottom line, there will not be a crash of the dollar because dollar-based assets are not in the biggest bubble. They may be over-valued relative to gold, or even cryptos, but they are not over-valued versus Italian or Spanish debt.
Or how about Brazilian corporate debt.
Or Canadian Real Estate Debt.
These trades look good now, and Yellen may have a little egg on her face between now and the September FOMC meeting, but the further to the upside the euro goes while gold languishes below $1300, the more offside that move looks.
I'm not saying the Dollar can't go lower, but the lower it goes here, the more violent the snap-back rally will be.
Sources:
http://www.zerohedge.com/news/2017-07-26/fed-poised-ignite-violent-dollar-rally
Impressive analysis. You remind me of Fleckenstein. Did you notice the 10 year went from 2 to 2.5 the week of the election? Yeah, I think the fed will do anything to harm Trump, I predict they start raising big time for the midterm elections and beyond.
I did. The dollar went through a climax peak with the election which the central banks coordinated to fight all this year out of fear of a liquidity crisis.
NUGT jumped up 10% just before close today.
Thoughts on that move?
STEEM On!!
Gold popped up through $1260 resistance, but again, until we see something substantial, $1308 or higher on a weekly closing basis, it's all just set up for a reversal.
There's a dollar short squeeze coming.
Apparently rain in North Korea has delayed the next missile launch, so I got out of NUGT PDQ.
Right. The gold jump yesterday was just a temporary blip in response to Yellen going a touch Yellow on raising rates. Go slow now that inflation numbers have stopped going up.
Dollar short squeeze should take gold down to new yearly lows I would guess.
Yes. There is a real worry about this. This is why watching what happens in Europe is more important than the Kabuki Theatre surrounding the U.S. Congress and its bitch-fest with Trump.
Trump will prevail n the 2018 mid-terms with a stronger Senate majority based on demographics alone. And that puts McCain, Graham and the rest on the back-burner. They can grandstand now, but this is as powerful as they'll ever be. And once that becomes abundantly clear along with Draghi being out of bullets at the ECB, then things get interesting.
Depends what is meant by a "crash" of the dollar and over what timescale. Certainly the dollar can fall a long way from here against all the major currencies and still have only retraced 50% of its climb since 2014.
If the US wants to export, and surely it needs to in order to encourage real business rather than consumerism, then it needs a weaker dollar. Raising interest rates will be a bizarre move at this stage as this would strengthen the dollar and penalise exporters. The USA needs to reduce imports too and seemingly want to "buy American" .
Trump & The Fed on a collision course but is Trump willing to take on the Fed and its economic mismanagement?
The Fed is going to raise rates because they don't want to be blamed for a stock market bubble. But, higher rates are causing capital to flow into U.S. stocks out of fear of a global recession. That's the Catch-22 most people are missing.
That's what the market is setting up for and right now the euro is climbing as traders wrongly think the EU is more stable than the U.S.. But who's debt is more expensive? Who's debt is of higher quality? The dollar has been weakening despite higher rates because the market thinks the Fed is raising into a recession. It isn't wrong. The Yield Curve has flattened, but it won't invert like Greg Mannarino has been predicting.
We have the standard Kabuki Theatre leading up to a debt ceiling fight. Nothing new here. Weakened Trump now equals weakened dollar, which is the wrong read. Without a breakout to the upside in Gold this dollar bearishness is simply a big head fake based on political risk.
Whats your take on the USD now? Alot of analysts are saying it will just keep dropping every week without any meaningful bounce, gold will continue to 1300+. Trump wants a weak dollar and so far he is getting it.
I think with this week's breakout in the euro we are in for a wild ride for the next couple of months. Painful to admit, as I'm a huge euro bear, but the situation is clear.... between the debt ceiling, trump's precarious position and Merkel's poll numbers... the euro could rally to $1.25+
I don't think gold will rally past $1308 though. If we get a huge spike in the euro without a confirmation of a long-term breakout in both gold and silver... I'll give those number in a future article, then that's telling you the euro sovereign debt crisis is set for early 2018... right on time.
Ok. The USD could have a short term bounce, difficult to see it just keep plummeting from here