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Speculators Have Never Been More Long The Dollar
After a brief hiatus the previous week, speculators have piled back into the most-over-crowded trade in the world - Long The US Dollar. As Goldman Sachs notes, overall USD speculative net long positioning increased $2.0bn to $45.7bn - a new record high.
However, as JPMorgan reports, there is some divergences in the types of funds who are long or long-er...
We have used two indicators in the past to gauge investor positioning in currencies: 1) spec positions based on CFTC/IMM data as shown above1 and 2) the beta of currency hedge fund returns to daily currency changes as shown in Chart A18 in the Appendix in the case of the US dollar. The latter is calculated as the rolling 21-day beta of currency hedge fund daily returns to daily changes of the JPM Dollar tradable index. We use the Barclay index to proxy currency hedge fund returns.
Chart A18 shows some recent divergence between the two suggesting that currency hedge fund USD longs are not as extreme as those of CFTC reporting spec investors. This broader universe of spec investors reported by the CFTC includes, beyond currency hedge funds, macro hedge funds and asset managers. In other words, macro hedge funds and asset managers appear to be more overweight the USD than currency hedge funds. With the caveat that the currency hedge fund betas are volatile and are based on a small sample of currency hedge funds, Chart A18 suggests that the message we get from CFTC positions that USD longs are very extreme should be somewhat diluted.
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King Dollar, however, is not all sunshine and rainbows, as SocGen's Michala Marcussen warns, beware the strong dollar paradox...
Recent currency movements have triggered nostalgia of the pre-crisis world when dollar strength was synonymous with a prosperous global economy. Hope today is that a strong dollar will cap US inflation, delay Fed tightening and boost exports to the US. To make an impact on US inflation significant enough to slow the Fed, we estimate, however, that EUR/USD would drop to 1.10, USD/JPY to 120 and USD/CNY to 6.50 to significantly shift Fed expectations. To our minds, moreover, such a scenario would only materialise if the growth gap between the US and the other major economies were to widen further.
Should recent dollar appreciation, moreover, breed complacency amongst policymakers elsewhere, this risk scenario could become a very painful reality. The paradox is thus that a strong dollar tantrum could be a more worrying scenario than a Fed tightening tantrum.
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Several EM economies set to growth at a slower pace than the US: While the consensus growth outlook for the US has improved further in recent months, the opposite has been true for several other major economies, including the euro area, Japan and China. Moreover, our own forecasts remain generally below consensus with the exception of the US, where we are above. This view underpins our expectation of further dollar appreciation. Today, moreover, several EM economies are growing at a slower pace than the US. This is a notable difference from the pre-crisis era and has several implications. First, this lower global growth configuration is one reason why we believe that elasticities linking currency depreciation to growth may now be lower. The correlation between commodity prices and the dollar has also shifted. Finally, we note that capital flows are now moving in a very different pattern.
Dollar and commodities: The link between the dollar and commodity prices has seen several shifts over time. Already prior to the latest moves in currency markets, commodity prices were trending lower in parallel with Chinese growth forecasts. More recently, it seems that dollar depreciation may have been an additional factor driving prices lower. For commodity importers, this is helpful; for exporters, this marks yet a headwind.
Fed tightening may be a better scenario than a very strong dollar: Pre-crisis, in a simplified summary, the strong dollar can be described as having been driven by a global savings glut (mainly from the official sector in emerging economies) seeking a home in US Treasuries and, at the same time, US investors seeking risky capital abroad to profit from strong EM growth. It is also worth recalling that QE1 drove the dollar stronger and supported risky US assets as Treasuries rallied. QE2, on the other hand, saw dollar depreciation as US investors sought return in higher yielding asset abroad, and notably in emerging economies. As discussed above, we believe that a significant appreciation of the dollar relative to our baseline would be consistent with much weaker growth elsewhere.
In such a scenario, dollar would equate to further capital outflows, placing further pressure on already vulnerable economies. Indeed, a “dollar tantrum” scenario could well prove more painful than a “Fed tightening tantrum”, assuming the later comes with better growth in the rest of the world.
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The Long USD Trade...
If you are a trend follower, the trend is your friend.
If you are a contrarian, you might want to go short the USD ...
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The writer of the article assumes quite wrongly that there is a free market.
No, there is no free market.
Central command picks winners and losers. It is that simple.
Remember the Robot Chicken Star Wars sketch where Darth Vader mentally strangles misbehaving employees remotely with his hands? It turns out everyone was pretending to be strangled all along. They went along with it; that's the only reason Darth Vader believed he had remote choking powers. And the audience believed it as well because this was never explained in the actual Star Wars movies.
The fed is Darth, the market is the misbehaving employees, and the general public is the Star Wars audience.
I find your lack of faith disturbing.
What else are the weasels that don't understand gold and silver going to buy?
The dollar is the worst possible fiat..., except for all the others.
It's a race to the bottom. Everyone wants a weaker currency to fight off deflation and trade deficits.
I hope that's not all you find disturbing;)
I've learned in over thrty years of trading to never trust the story. That said I see stronger USD for all the wrong reasons. How long can this go on?
Longer than you can remain solvent. Anything can happen at the worst possible time. Living in thailand I hope I'm right But I hedge with gold.
The $usdx is ripe for a retrace back to the 50 day average around 85.60.
Here's the daily chart.
Up arrow for chart, and kudos for surviving this long in the FX arena.
Yep, if the situation was logical. But it isn't. Tfmetalsreport runs into this all the time with gold pricing. I got bored over there not long after Turd admitted there was no point in such a manipulated market, only sensible thing to do is stack.
Kind of shot his fledgling business in the foot, then he went back to chart analysis. Not much changed since.
its going to 120, get long on this ho'
~DipshitmiddleclassWhiteKid
Yee-Ha!
I can see 120. PM's get wacked but I will hold and stack all ther way down.
Stay thirsty my friends.....
wait...i forget...what happens when everyone piles onto one side of the boat?
Everyone starts talking their book! To keep the run going!
can someone shill for PM's .... haven't heard the usual shills, start shillin for gold silver
err.. haha
I don't know about boats, but I hear they might tip over an island.
Japan and the EU still think they're in a Mexican standoff.
The trend right now is your friend.
Until it isn't.
Our Trade Defict will balloon. Our Balance of Account will grow to the size of the total National Debt.
It is, after all, the cumulative Trade Debt...and IT IS ANOTHR DEBT...another LIABILITY...as those Dollars will, someday soon, flood our domestic markets to be redeemed.
As Japan HYPERINFLATES, she will just do a large reversal upon the USA. Japan will export her Hyperinflation just as we have been exporting our inflation for many years.
Japan will dump her vast holdings of US Treasuries to attempt to secure real goods and Natural Resources.
Enjoy this time now because the days grow short and we are in for a long cold winter.
i don't know abt that cold winter part, it's currently 85 degrees here, but boy are these enjoyable days!
http://www.weather.com/weather/tenday/Malibu+CA+90265
https://www.youtube.com/watch?v=IDZqmF3zS04
The dollar is on a long-term trajectory that will carry it much higher over the coming years. Most debt is denominated in dollars so when the deflationary vortex begins to suck the wealth out of every other kind of asset, the dollar will be seen as the safest haven available.
In the short-term, however, the dollar has just peaked in a wave 1 of Minor degree and will spend the next couple of months in a Minor degree wave 2 correction. But late this year or early 2015, it will resume its rise into Minor wave 3, typically the strongest of the impulsive waves.
http://www.globaldeflationnews.com/u-s-dollar-indexelliott-wave-update-f...
When was the last time Elliott wave analysis factored in an historical geopolitical economic and military power shift (fully discounting Chinese gold accumulation) such as is taking place today, right in front of us...? Russia? It is time to rethink the way things have been for the past (70-odd) years, and the catechism of Bretton-Woods domination that went along with it.
The dollar in no different than toilet paper.
It is a true emergency when you or a country really needs its...
But once your done wiping your ass with it?
2 billion increase compared to a 7-trillion-a-day market, square that circle.
There is only 1 way to relquify the system as the dollars strengthens.
The falling value of both the yen and euro will reek havoc through contagion. For months the major world currencies had traded in a narrow range as if held in limbo by some great force. This has allowed people to think we were on sound footing as central banks across the world continued to print and pump out money chasing the "ever elusive growth" that always appears to be just around the corner. Recently several major currencies made multi-year highs or lows depending on the match-up .
The Fed recently whacked the dollar down but for how long? Because of weak demand for goods and most of this freshly printed money flowing into intangible investments inflation has not been a major problem, but the seeds for its future growth have been planted everywhere. John Maynard Keynes said By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Weakness in the value of the Yen, Pound, and Euro must not go unnoticed. More on why this may be a signal that currency trading is about to get very wild in the article below. Please note, this may also be sending a signal that the whole system is unstable and the stock market could drop like a stone due to contagion.
http://brucewilds.blogspot.com/2014/09/caution-alert-currencies-may-get-wild.html
http://www.safehaven.com/article/35734/the-financial-repression-authority-with-john-butler
John Butler has 18 years experience in the global financial industry, having worked for European and US investment banks in London, New York and Germany. Prior to launching the Amphora Commodities Alpha Fund he was Managing Director and Head of the Index Strategies Group at Deutsche Bank in London, where he was responsible for the development and marketing of proprietary, systematic quantitative strategies for global interest rate markets. Prior to joining DB in 2007, John was Managing Director and Head of European Interest Rate Strategy at Lehman Brothers in London, where he and his team were voted #1 in the Institutional Investor research survey. In addition to other research, he publishes the Amphora Report newsletter which appears on several major financial websites. A cum laude graduate of Occidental College in California, John holds a Masters Degree in International Finance and Economics from the Fletcher School of Law and Diplomacy, associated with Harvard and Tufts Universities.
Financial Repression
BROAD DEFINITION: "Any Policy that constrains the ability of the financial markets and investor participants in these markets to take rational actions to invest, diversify and manage the risk of their investment as they would personally prefer to do."
NARROW DEFINITION: "A specific tool kit of policies implemented by government which indirectly confiscate the wealth of the private sector and move it to a combination of the public sector and/or "too large to fail" institutions."
FINANCIAL REPRESSION IS ABOUT LIMITING INVESTMENT CHOICE
"The whole point of financial repression is to make it difficult or impossible for an investor to protect themselves"
John feels Financial Repression "is now extremely broad based (globally) and in fact you have to look very closely to find countries not actively pursuing some mix of Financial Repression policies."
A Negative Sum Game
Butler has argued in his Amphora Report that competitive currency debasement is "is not a zero sum game but rather a negative sum game because policy makers don't realize that by trying to devalue against each other, unseen they are undermining the very credibility of unbacked fiat currencies generally."
Increasing the BRICS are "becoming increasingly wary of where all this is going and as a consequence are diversifying not only their fiat currency reserves but are diversifying into gold, oil fields and real assets generally."
How Investors Protect Themselves
"The only free lunch in economics is DIVERSIFICATION. The problem is that in a world of Financial Repression, the way you diversify yourself is very different than a world where financial represion is not an issue."
"There is no way out but Currency Debasement"
John outlines in this video specifically what the "new diversification" must consist of.
He believes the Fed "will blink" as the US dollar continues to rise as a consequence "of the deflationary pressures which are spreading across the world." He sees evidence of a major trend reversal coming in 2015 and possibly before the end of 2014.
https://www.youtube.com/watch?feature=player_embedded&v=brEfmCgWIIY
USD should test near 89 before pulling back to near 87.
http://bullandbearmash.com/chart/dollar-daily-pulls-sharply-short-term-top/
Pullbacks in USD should be short lived.
Speculating or just moving closer to the 'real' at the bottom of Exter's pyramid?
If you flip the Dollar over you see the Gold trade.I'd be very careful going Long Gold right now.On a long term chart you can see the U.S. Dollar at a crucial area.If she busts through,look out for Gold to go to a Thousand.
http://www.investing.com/analysis/dollar-technicals-stretched,-but-funda...
http://www.investing.com/analysis/here's-where-the-usd-could-reverse-231792
http://www.investing.com/analysis/what%E2%80%99re-the-odds-of-a-usd-corr...
http://www.investing.com/analysis/gold:-close-but-no-bottom-yet-231763