As I’ve noted for months now, the USD would, and did rise when one of the following occurred:
By Daniel at 27 December, 2009, 10:52 am
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A. major fear event: got that from Dubai World’s announcement, and EZ downgrades kept fanning the fear, which in turn plays into the USD’s safe haven role as risk seeking carry trades unwind
B. fundamental improvements in jobs and spending that in turn move up expectations for Fed QE exit and interest rate increases. Expectations on this front were so low not much was need to beat them.
C. An event that undermined the EUR.The EUR/USD pair comprises about a third of all FX. In other words, for every 3 euro bought a dollar is sold. They almost always force each other to move in opposite directions. Debt downgrades of Greece and Spain, with more threatened, as the somnambulant ratings agencies awoke after the Dubai wake up call, undermined the EUR, and thus helped the USD. These problems aren’t going away any time soon, so expect them to continue to prop up the USD. Yes the US is far from a paragon of fiscal virtue. But in Forex all is relative, and here it’s not as much a beauty contest as a competition for “least ugly.”
Soveriegn debt threat remains for the EUR for the foreseeable future, providing support for the USD and a reminder to traders that too many USD shorts could be dangerous under these conditions.
- Cliff Wachtel
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