This chart of the dollar captures the trend of the last couple of weeks very well. As I read the action it appears as though the dollar has no where to go but down. Ahem.
If you have been lucky enough to have a lot of foreign exposure this year you have probably added a lot of alpha to your portfolio. It is possible any outperformance has accelerated in the last two weeks.
I wrote a similar post recently, but the dollar can't go in only one direction. I generally expect a weaker dollar but it makes sense to think it has to correct a little bit before anything else.
I am writing this just as the Fed is due to announce a move to 5%. As seems to always be the case the market is waiting on pins and needles for Maria to decipher what their statement will mean.
Some sort of dollar rally would not come as a shock even if it does not last a long time. Another factor that could turn the tide, short-term, is that anecdotally there seems to be no positive sentiment on the dollar anywhere. In the past I have noticed everyone ganging up on the same side of the trade and it usually turns the other way shortly there after.
This post is not meant to urge anyone to undo any themes they believe in but to create some expectation that some things that have been working very well for the last couple of months may have a bumpy few weeks.
3 comments:
Take it easy on the Greenback. Those guys are probably wearing a parachute.
hmmm,yeah you might be right.
If the current US policy is to allow the dollar to fall some more in order to apply more pressure on China to revalue the yuan then there will be no rate increase. That's a dangerous game of course to which China, and Asia generally, is already reacting with an 'Asian currency' proposal - essentially a threat to dump the dollar - not particularly realistic but the stakes in this global game are rising fast.
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