Friday, December 11, 2009

Indicators point to a bounce in the USD

You say "But EVERYONE is short the US Dollar?"
So what. Is the USD worth zero? We already have lost 20% of the value of our currency in a year. That is a huge move. Let's look forward.

There are fundamental factors that could facilitate a rebound in the USD. A default of Greece, Russia, Hungary, Latvia, Mexico, or a major international bank all might cause a flight back to the USD. Also the completion or ending of the mortgage purchase program, Treasury purchase program, and declining effect of the stimulus all will have a deflationary effect on the USD.

In fact there are market indicators that show the USD could head higher from here in the short term.

The first is the possible break in the USD downward trendline. The euro is foretelling a break of that six month trend.

Second is the options action on the USD Jan 10 Option Chain (expressed through the UUP - USD Bullish ETF). At least one major hedge fund or active market participant has engaged in a bull call spread that will make money as UUP crosses $25.25 or so. Minimal action on the put side of the equation is a bad sign for anyone short the USD.

These positions could be just foolish bets from large accounts dumb money. But sometimes making positions in front of any trend where lots of money is moving in the same direction is the best place to be, smart or dumb.


Lockstep said...

The USD has definitely broken out. No idea where it is going. But it will be something to watch.

Lockstep said...

This was a very good call. I am taking a position long on UUP at $23.10


Excellent point