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Citi Warns "Unwise To Short The Dollar"

Tyler Durden's picture




 

Citi sees a number of parallels, both in terms of the background dynamics and the course of events, seen throughout the 1990s and more recently over the past 7 years. As Tom Fitzpatrick notes, these similarities are not confined to the US economy but incorporate developments on a global scale and stringly support their view that the US dollar should rally for about another two years.

 

 

Via Citi FX Technicals,

Similarities in the course of events and the trends in the USD

US

– 1989-1991: The US housing boom ended with the savings and loans crisis which in turn led to a severe recession. The Fed cut rates and the USD continued lower

– 2005-2007: US housing boom came to an end as over lending could no longer be sustained, especially Sub-prime lending. The USD continued lower and the Fed started its rate cutting cycle in September 2007.

UK

– 1992: UK housing boom also came to an end – the housing and credit cycles in the UK are quite in line with those in the US. The UK was fixed into the Exchange Rate Mechanism at an unsustainable rate and in the end left the ERM. GBPUSD peaked from just above 2.00 and fell to the low 1.40’s in a matter of weeks

– 2008: The UK housing bubble came to an end. Over lending in nearly all parts of the economy, public and private sectors, came to an end and GBPUSD collapsed from a little over 2.00 and fell to 1.35. The downtrend was further exaggerated as the USD rallied across the board during the major financial markets meltdown post Lehman Brothers.

EUROPE

– 1995: All currencies locked into exchange rate bands left the system and it imploded. All European currencies devalued against the German Mark but the USD started to outperform. It was a major platform for a 5 year USD bull market

– 1998: The convergence trade in EU peripheral bonds (and currencies as they converged to the EUR entry rates). During this period into October of 1998 European currencies did better rallying 16.5% against the USD from August 1997-October 1998. As convergence “ran its course” the EURUSD rate fell for 2 years into 2000.

– 2011: No currency in Europe could devalue against each other because of the “fixed exchange rate” system called the single currency. Europe went through a Sovereign bond markets crisis. The EUR posted a significant high against the USD

– 2014: We have witnessed the peripheral Bond markets convergence trade in Europe since the summer of 2012. At this point Spanish and Italian 10 year yields are only about 60 basis points above the US. If, as we expect, long-term yields are set to rise in the US this does not seem to be a sufficient premium to take that risk.

JAPAN

– 1995: USDJPY was already trending down but the Kobe Earthquake led to significant JPY repatriation. USDJPY fell to the trend lows at 79.75.

– 1997: Japan raises its consumption tax

– 2011: USDJPY was already in a downtrend as carry trades seen years before had ended and interest rate differentials had moved in favour of the JPY. The Tsunami and subsequent Fukushima disaster send USDJPY to new all-time lows.

– 2014: Consumption tax rise coming in April

LOCAL MARKETS

– 1997-1998: The exchange rate regimes in Asia came to an end with a number of countries defaulting. Russia also defaulted in 1998. While there was volatility in G10 markets as the USD actually went down instead of up because the market was too heavily positioned long the German Mark (As a hedge to the concern that German banks were heavily exposed to Russia), the correction down in the USD was short lived and a platform was set for another 2+ year rally into 2000.

– 2013-2014: A number of Local Markets came and are still under pressure as assets are sold and foreign flows are reversed. This has largely been a direct consequence of changes in Fed policy (tapering) and the economic situation in some of those markets. Further outflows are likely over the course of the months ahead as the Fed finally heads towards a more normalization of monetary policy.

USD Index – back above the previous low

The USD Index posted a decent up week last week and a weekly close above the December 2013 low of 79.68

Weekly momentum is also beginning to cross back up again

Decent resistance levels come in at 81.38-81.45 which are likely to be tested over the coming weeks. A weekly close above those levels would amount to important breaks if/when seen

The setup may be seen as a double bottom pattern with a neckline at 81.48. A weekly close above there would open the way for 83.68 at a minimum.

 

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Wed, 04/02/2014 - 19:07 | 4619094 Newfie
Newfie's picture

Tell that to Putin

Wed, 04/02/2014 - 19:09 | 4619101 fonestar
fonestar's picture

You short all nationalist digital currencies when you buy Bitcoin!

Wed, 04/02/2014 - 19:12 | 4619110 American Dreams
American Dreams's picture

Sooooo Short the dollar yes? hahahahahahaha

There be NO shelter here

AD

Wed, 04/02/2014 - 20:07 | 4619306 negative rates
negative rates's picture

Just give me 45 degrees and some time.

Wed, 04/02/2014 - 19:13 | 4619115 Newfie
Newfie's picture

Fonestar eat yellow snow.

Wed, 04/02/2014 - 19:32 | 4619166 fonestar
fonestar's picture

fonestar is already filled with high cryptose bit syrup!

Wed, 04/02/2014 - 19:39 | 4619189 Magnix
Magnix's picture

You spelled Bitcoin WRONG! Its GOLD! You dummy!

Wed, 04/02/2014 - 22:32 | 4619790 s2man
s2man's picture

+1  I short the dollar every month by buying silver.

Wed, 04/02/2014 - 19:31 | 4619163 Kirk2NCC1701
Kirk2NCC1701's picture

FYI... CITI = Saudis.

Wed, 04/02/2014 - 20:48 | 4619486 sessinpo
sessinpo's picture

Newfie   Tell that to Putin

---

We did. That is what the Ukraine is all about as well as the confiscation of Saudi gold in London before Obama made a visit.

Wed, 04/02/2014 - 19:07 | 4619095 knukles
knukles's picture

Oh, who gives a rats ass.  Corbat just got promoted to a cushy job in DC educating infants about the benefits of unfettered capitalism accruing through campaign contributions and insider dealings.

Wed, 04/02/2014 - 19:51 | 4619223 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Corbat just got promoted to a cushy job in DC educating infants 

This is new????

Wed, 04/02/2014 - 19:07 | 4619097 surf0766
surf0766's picture

FUCK CITI

Wed, 04/02/2014 - 19:22 | 4619099 Son of Captain Nemo
Son of Captain Nemo's picture

"As Tom Fitzpatrick notes, these similarities are not confined to the US economy but incorporate developments on a global scale and stringly support their view that the US dollar should rally for about another two years."...

Why certainly that could happen!  After President Remus courtesy of Israel's Sampson event we could see USD hit higher highs -Atop a mushroom cloud that is!!!!

In the "Land of Opportunity" with a set of good Zionist Jew bankers that know how to threaten... Anything is possible!!!

Wed, 04/02/2014 - 20:51 | 4619499 sessinpo
sessinpo's picture

Son of Captain Nemo     In the "Land of Opportunity" set of good Zionist Jew bankers that know how to threaten... Anything is possible!!!

-----

Post like these crack me up. Let's say a bunch of nuns ran the banking system. Then Son of Captain Nemo would be saying,

In the "Land of Opportunity" set of good Nun bankers that know how to threaten... Anything is possible!!!

LOL

Wed, 04/02/2014 - 21:23 | 4619606 Son of Captain Nemo
Son of Captain Nemo's picture

sessinpo

When the day arrives that nuns become bankers at the Federal Reserve, JPM and Goldman Sachs I'll be sure to make a note of it to place the finger of guilt in there general directions! 

I know it sucks but track records and stereo types tend to travel in pairs.

Thu, 04/03/2014 - 09:44 | 4620906 detached.amusement
detached.amusement's picture

--I know it sucks but track records and stereo types tend to travel in pairs.---

awesome

Wed, 04/02/2014 - 19:12 | 4619112 disabledvet
disabledvet's picture

"and we look to paying savers 1.89% going forward as well. thank you and have a nice day."

Wed, 04/02/2014 - 19:13 | 4619113 TN Jed
TN Jed's picture

Grandpa, what's a dollar?

 

Wed, 04/02/2014 - 19:32 | 4619165 0b1knob
0b1knob's picture

Grandpa, what's a "United States"?

Wed, 04/02/2014 - 20:44 | 4619475 sessinpo
sessinpo's picture

Grandpa will be dead from death panels.

Wed, 04/02/2014 - 19:41 | 4619193 HardAssets
HardAssets's picture

What's a 'Grandpa' ?  Heard they got rid of all those as part of austerity measures back in 2024, but I can't find a definition of the word on my computer implant.

Wed, 04/02/2014 - 20:22 | 4619215 American Dreams
American Dreams's picture

Well you see Jeddie, it was once the trusted currency of the United States of America.  Believe it or not, a long, long time ago you could actually exchange a piece of paper called a "dollar" for gold.  Amazing I know, but thats the truth young man, and you could make the transaction at a bank.  Now I could go into what a bank was but that is a story for another day, haha and a long story at that.  Back to your question, a dollar was used to trade with other people or businesses and it was actually used by most all of the world to trade across continents and the oceans blue.  But,     hahahaha yes Grandpa has a butt, he always does doesn't he.  But, well over 100 years ago, after three attempts a central bank was created in the United States of America, a central bank is not a real bank mind you and this central bank at one point in time printed the paper money that everyone used.  Now, this central bank controlled how much they printed, and back when there was a United States of America the old rulers gave the central bank the freedom to print as much as they wanted, and allowed the central bank to charge the people interest on ALL that paper money - that is how the men and women in the central bank stole from the people, they charge them interest.  Believe it or not, most all of the people didn't even know they were being charged, I know, I know it would not happen now but it did THEN.  Yes, yes I know this is getting complicated so Grandpa will make it short.  So to answer your question, what's a dollar?  Well, at one point in time, when you could take a paper dollar and trade it for gold it was considered a fair trade for our labor in the fields, but when the central bank would no longer give us gold for their paper then it was just debt.  You know Jeddie, debt, like when you want to go by a sheep at the stockyard but you don't have enough chits to do it you ask me to borrow enough chits to buy that sheep you want, and you promise to pay me back.  You are in my debt then, yes?  Yes Pappy, I know what being in your debt means, sheesh.  

 

The front line is everywhere 

AD

Wed, 04/02/2014 - 19:14 | 4619116 Winston Churchill
Winston Churchill's picture

Reading between the lines;

Citi wants some counterparties to their own short.

Wed, 04/02/2014 - 19:14 | 4619117 medium giraffe
medium giraffe's picture

Gartley fans might be inclined to agree, but things go south pretty quickly when empires collapse.

Wed, 04/02/2014 - 19:16 | 4619120 bubblemania
bubblemania's picture

Bullish!

Wed, 04/02/2014 - 19:21 | 4619133 Gringo Viejo
Gringo Viejo's picture

IMHO, Citi's shorting it.

Wed, 04/02/2014 - 19:41 | 4619198 RabbitChow
RabbitChow's picture

well, duh.  Whatever Citi says, whatever goldman says, whatever jpm says, do the opposite.

Thu, 04/03/2014 - 05:09 | 4620363 NoClueSneaker
NoClueSneaker's picture

Noone explained hiatus of Bandar Bush . Atimes speculated he tried to trade Saudi Oil in RMB and got sucided for that. OK senile tyrant of Abdallah still farts,  but just in case Bandar comes on the throne .... oh, yeah - CITI is shorting ...

Wed, 04/02/2014 - 19:23 | 4619141 FieldingMellish
FieldingMellish's picture

Squiggles on paper. Is it possible to have a "least shittiest" turd? Does it matter which one gets wiped out first if they all are heading to the same place?

Wed, 04/02/2014 - 19:44 | 4619205 HardAssets
HardAssets's picture

Yep, of course, physical PMs are the short on all of them.

Wed, 04/02/2014 - 19:24 | 4619143 orangegeek
orangegeek's picture

A lot of support around 79.00 where we just moved up from.

 

http://bullandbearmash.com/chart/dollar-daily-moves-euro-extremely-weak-...

 

As well, Euro is trending down - should drive USD much higher.  We did taper 10B in April, but that may not be the only stimulus the central banks are pumping.

Wed, 04/02/2014 - 19:26 | 4619148 LeisureSmith
LeisureSmith's picture

I don't use shorts, i use big boy pants.

Wed, 04/02/2014 - 19:31 | 4619164 Clowns on Acid
Clowns on Acid's picture

S/T term techs could see a USD rally to 1.3000 , but L/T how can anyone be long USD? The Fed is the prxy for mthr ECB, and the ECB needs a relatively strong EYR to keep investors in their shitty sovereign bonds or the gig is up.

The USD lower doesn't worry the Fed ('cause they don't care about the US citizens) because the inflationary aspects of a lower USD allows them to buy back their debt (the Int'l banks')  cheaper.

Tommy Fitz is using cob webbed thinking here me thinks. But he is a good guy ! 

Wed, 04/02/2014 - 19:34 | 4619172 schooltruth
schooltruth's picture

I believe what they meant was it's unwise to short ANYTHING!  I keep adding to my short QQQ but it keeps going against me.  When i finally cave it will be time to take out that reverse mortgage that Fred Thompson is always pushing and short with every dime you can get your hands on. :)

Wed, 04/02/2014 - 19:44 | 4619201 ChargingHandle
ChargingHandle's picture

Coming from a bank that failed its 2nd stress test in 3 years even with all this fiat money being shoveled around...I don't necessarily disagree but my assessment has nothing to do with what this bank says. 

Wed, 04/02/2014 - 20:55 | 4619524 sessinpo
sessinpo's picture

ChargingHandle           Coming from a bank that failed its 2nd stress test in 3 years even with all this fiat money being shoveled around...I don't necessarily disagree but my assessment has nothing to do with what this bank says.

---

And if the bank had passed the stress tests, would your opinion change? I doubt it, thus your comment is ridiculous.

I am not a citi or any big bank fan. I am looking at fundamentals in a currency battle. Who will win is anyone's guess. But as long as the dollar is the currency reserve, when debts come due, it means dollar rally.

Thu, 04/03/2014 - 00:16 | 4620065 DarthVaderMentor
DarthVaderMentor's picture

If they had passed the stress tests, they wouldn't have made this announcement. I think this is a "Announce that you shouldn't short the dollar or Perish" from the Fed to Citi. Brought to you by the extortionists at the Fed......

Wed, 04/02/2014 - 19:45 | 4619209 RabbitChow
RabbitChow's picture

Yes, of course; if Citi says beware and to not short, stay long and strong till the very end.  Don't worry you will profit in the end.

Wed, 04/02/2014 - 19:55 | 4619242 Pure Evil
Pure Evil's picture

I didn't know you could buy a stairway to heaven.

Wed, 04/02/2014 - 19:48 | 4619220 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Only if you are trying to short it in a rigged market that owners want a long winning position.

You short it through non participation in the market or using it period.

Wed, 04/02/2014 - 19:56 | 4619254 delivered
delivered's picture

I've always felt that the USD has one more mighty run left in it before the end comith. No doubt history has been a solid indicator of flights to the USD for safety whether from political turmoil, military conflicts, currency/economic crisis, environmental events, etc. But the 1990's are far different from the current decade as really, you need to look no further than the might of the BRIICS 20 years ago compared to today. Twenty years ago, Russia was simply trying to figure out how it lost the cold war and how to understand/transition into a capitalist system. As for China, they were just in the early stages of managing a transition to the open world and had barely a $1 trillion a year economy. The rest of the BRIICS were immaterial. 

Even when you look back ten years, the same environment was present (although the BRIICS were definitely making headway). But today, we have a different story. It wasn't too long ago that the US accounted for 30+% of the world economy (2002/2003 time frame). Today, 12+ years later, the US accounts for roughly 23%+/- of the world economy (estimate of $17.5 trillion economy compared to world estimate of $70 to $75 trillion). And in another ten years, well its safe to say the US share of the global GDP will be well south of 20%. So basically by let say 2020, the world's economy will be in the $90 trillion range (assuming no major meltdowns which is a big assumption) with the US dropping to just 20 to 22% of this figure. In this scenario, I'm struggling with finding solid support for the USD as close to 80% of the world's economy will be conducted outside of the USA. 

Where I figure Citi's logic/conclusions are flawed is that they are too focused on technical signals and rely too heavily on recent history (not to mention that they still believe the US still holds the same influence on the world economy as 20 or even 10 years ago). This is supported by the ZH article today on Russia and Iran executing a $20 billion trade agreement. By itself, this is immaterial but when you begin to add up all of the deals and agreements executed between Russia, China, and the balance of the world, $10 billion here and $20 billion there and all of a sudden, the point is reached where USDs are simply not needed for trade. Why bother as in this day and technological resources, there is no reason to convert such a high number of international transactions into USDs. Just go direct, bartar, or use alterntive forms of currency (gold and BTC come to mind). 

Of course the world still has to deal with the problem of having too many USDs floating around and utilized as reserve currency in countless countries (in their central bank reserves). But this is the double edge sword. Crater the USD's value and all of a sudden, your country's currency reserves are, in the words of Tom Hanks from Apollo 13, "Houston, we have a problem". But any increase in the value of the USD will probably be met with countries looking to exit excessive positions and buy real assets (and view the appreciation as an opportune time to exit). Further, the world has the problem of having excessive amounts of debt denominated in USDs. One would think that this would be bullish for the USD as demand increases to repay the dollar denominated debt. But then again, parties that are looking for debt repayment may not even want the USD down the road and rather would have a basket of currencies or take real assets in exchange (if the creditor feels the value of the USD is excessive).

My conclusion to this entire mess is as follows - The stupid and hot money will move into the USD and view it again, as a safe haven during troubled times. The smart and long-term money will see through this charade and continue to acquire real assets and diversify into a broad range of currencies that they know in 10 to 20 years will be more valuable for trade than the USD (i.e., based on the largest and strongest economies and trading regions in the world which will be centered throughout all of Asia including Russia to the North and the Middle East to the West). 

So I'm still on the side, at least for the short-term, that the USD has one more run left in it but eventually, when all of the hot, stupid, and arrogant money (i.e., those that think the USD can never lose it's reserve status) realize they are all on the same side of the trade and look to exit from the USD, the migration or rotation out of the USD will be one for the record books.

 

Wed, 04/02/2014 - 21:21 | 4619598 Remington IV
Remington IV's picture

Buy Gold

Buy Bitcoin

Wed, 04/02/2014 - 22:01 | 4619717 kamikun
kamikun's picture

Why not both? (splitting it about 80% precious metals / 20% emphemaeral magic bean code) :) 

Wed, 04/02/2014 - 21:43 | 4619670 kamikun
kamikun's picture

Over 80% of my savings is now in physical Au, physical Ag and physical bitcoin (that would be paper wallets with encrypted private keys locked away in the safe). As long as I can keep making enough fiat to cover housing, food and insurance, and I can keep adding to the canned food collection - I'm sleeping about as well as I can. Sad that this has become the new lifestyle for the proles...

Unfortunately I'm in a country that won't allow me to bear arms... or I'd be into that too. (And with the sh*tkicking bitcoin has been taking over the last couple of weeks.. now might be a good time just to throw in a few bucks as a hedge, whether you buy into the tech or not.)

Wed, 04/02/2014 - 22:21 | 4619770 pachanguero
pachanguero's picture

I hope they (Citi sucks) are right.  I'm paid in USD. but hedge it with Phyz.  Long miners caus everyone hates them.

Thu, 04/03/2014 - 00:53 | 4620112 royal
royal's picture

I too hope they're right, but that DX chart looks like a big ass bear flag...and the opposite is true on the euro...

Thu, 04/03/2014 - 00:53 | 4620113 royal
royal's picture

I too hope they're right, but that DX chart looks like a big ass bear flag...and the opposite is true on the euro...

Thu, 04/03/2014 - 02:25 | 4620233 syntaxterror
syntaxterror's picture

Seeing as a dollar has depreciated by 95% in the last 100 years, shorting seems to be the least of the concerns.

Thu, 04/03/2014 - 06:02 | 4620371 vyeung
vyeung's picture

Putin's in China in May. If they strike the holy grail deal and the terms of the contract are demoninated in anything other than USD (Yuan and Ruble is obvious choice but if they throw the golden nuke - WOW) why would I give a rats about the USD. Its dying as we speak (if it weren't for the ESF, plung protection team meddling). If you step back and view the current developments you see that the USD is gasping its last breath. JPM just helped it along with the SWIFT freeze. Hello BRICS cable.

Thu, 04/03/2014 - 05:58 | 4620396 omi
omi's picture

Truly the definition of Monkeys!

(I'm a technical trader too, btw) The thinking that it >MUST< do just that because there was a prior move up is somewhat silly, it might, it might not. You have to be ready both ways. Also that could play out more like a 5 wave down pattern.

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