Tuesday, February 16, 2010

USD bull momentum continues

Many doubted the USD. Called it dead and buried.

The USD has started to prove a better choice amongst world currencies. Analysts observing the change in the situation have revised estimates of the 2010 value of the USD vs Euro to reflect the trend toward USD strength.

In fact, large amounts of money has also started to point toward continued USD strength.

"According to data compiled by Scotia Capital, traders were net short the euro—meaning on balance they were betting it would decline—by a record $9.9 billion last Tuesday.

That is a 31% increase from the previous record set a week before. Traders were net long U.S. dollars by $7.9 billion, on a par with levels last seen during the financial crisis."

Once again, there are huge deflationary forces taking hold this year....

1. HAMP ends, massive short sales to ensue
2. Agency mortgage purchases by the Fed end (at least for a little while, may restart later)
3. QE using treasury purchases end (again, probably temporary - six months at most)
4. World wide stimulus programs end (South Korea, Brazil, Australia, India, etc)
5. No cash for clunkers
6. Declining influence of the US fiscal stimulus

... and many more

Plus the "flight to the USD" effect from...

1. Euro zone debt crisis
2. Dubai "restructuring" (default at 60 cents on the dollar)
3. Would you put your money in China an export economy with stimulus at 20% of GDP???
4. Massive Japanese QE (Not here yet, but definitely coming by May, no doubt)

Even though the US has huge debt problems, compared to other countries, their issues look reasonable. The Economist ranks the US and UK after the PIIGS for sovereign debt risk.

The flaw the US is the relative short maturity date of the debt. But one crisis at at time. For now, there is no problem rolling over US treasuries in short maturities and thus the USD IMHO is still on a long bull run.