The Playing Field Has Changed–Here’s How
Yesterday’s sharp sell-off in the dollar
changed the paying field yet again and we are still in the early stages of the
New Year. Dollar bears seem satisfied that their continued analysis that the
twin deficits will keep the dollar under continued pressure is again playing
out. The move lower was swift, and no doubt inflicted some pain, however, the
technical bounce from 82 is gaining traction and arguably appears to be more
than just a dead cat bounce, although 82.50 will need to be breached, and hold.
Despite the
dollar move lower, currencies like AUD and GBP and to a lesser extent, NZD are
still struggling with some technical levels that may prove difficult to breach.Â
In addition, the macro picture, is deteriorating in each, while here in the US,
not only is the economy performing better, relatively speaking, but monetary
tightening is also occurring, thereby reducing yield differentials. The
aggressive tightening in New Zealand throughout 2004 will, we believe,
ultimately take hold and slow the economy as the housing market has already
begun to do.
In essence, we
are in the process of seeking strategic short positions in each of the
above-mentioned currencies, NZD, GBP & AUD relative to the dollar. The FOMC
made it quite clear in the December minutes that a prolonged period of policy
accommodation that generated a significant degree of liquidity that may be
contributing to excessive risk-taking, increase in IPO’s, narrowing credit
spreads, and speculation in housing. Yes the trade deficits are a worry,
however, we are beginning to believe that a more aggressive rate policy and
continued economic expansions here in the US will underpin the dollar on 2005. Â
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In talking with other
colleagues and dealers, we are going to remain patient observers for the
remainder of the day, barring any unforeseen market moving events.
Open
Positions:
Long EUR/CHF from
1.5320
Short AUD/USD
from .7585
Dave Floyd
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