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The "Long USD" Trade Has Never Been More Crowded
Shortly after the Fed adopted the so-called “clean relent”, in September, we explained the dollar dilemma Janet Yellen faces in hiking rates. The problem for the Fed - and this is well worn territory by now - is that even as 25 bps might fairly be characterized as merely “symbolic”, it still marks a notable policy divergence from the rest of the DM world which is still in easing mode.
That means a hike risks making an already strong dollar even stronger which, depending on the gravity of the move, could have far reaching consequences on everyone from China, to EM as a whole, to US corporates (who aren’t keen on losing competitiveness).
In the simplest possible terms (via Goldman): “The Fed is struggling with a basic dilemma: how to normalize US monetary policy without the Dollar going through the roof.” Here’s a look at the trajectory the Fed is attempting to negotiate (the right pane separates EM FX from the majors for context):
“One of our core views is that the normalization of US monetary policy will result in a substantially stronger Dollar and we forecast the greenback to rise 14 percent through 2017,” Goldman said, in a note out this morning. “The Fed is worried about this scenario, to say the least, which might be one reason why Chair Yellen has begun to sound like an FX strategist in her press conferences.”
So, as we wait to see how many times FX strategist Yellen mentions the dollar and/or import prices on Wednesday, it’s worth noting that when it comes to crowded trades, the dollar takes the proverbial cake according to BofAML’s most recent fund manager survey.
Fully 53% of respondents said the dollar was the most crowded trade (short commodities was a distant second at 16%). That’s up sharply from just over 30% last month.
Meanwhile, when it comes to positioning, FMs are amusingly all-in on the very same trade they themselves say is three times as crowded as the next most overcrowded position:
Finally, here's a look at which factors FMs think might play a role in brining about an end to the USD bull market:
So there you have it: "Fed hiking cycle ends" is the most likely catalyst for a reversal of fortunes for the surging USD according to money managers.
Of course if liftoff swiftly triggers an EM meltdown characterized by rapidly accelerating capital outflows and the inexorable depletion of reserves to shore up flagging EM FX then we suppose the USD bull market will be over in relatively short order because if 25 bps tips the world into chaos, we'll be back to ZIRP by the end of March.
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No shit, never before has the Fed been backed into such a corner. But it is still a fiat currency world. What part of "race to the bottom" don't you fuckers get? Now jump you fuckers!!!
I can't wait till the Fed goes negative after it bumps rates...I wonder what will fall faster, the dollar or the traders who are holding long positions when it comes down.
Irrelevant. Remember, the velocity of a dead currency is in fact zero.
Yeesh, and people are telling Americans to "go to cash" when the long USD trade is so crowded?
Mass suicide. Sad.
Hmmm, jumpin outta the lifeboats back onto the Titanic
thats good^
If Goldman is right (and they have the connections to know) and the US$ is going to strengthen 17% in the near term, perhaps waiting a bit on precious metal purchases is a wise track. Now discuss amongst yourselves and report back.
If you would buy later then you should be buying now. What else is there to discuss other than online tithe payments and fiat value robbing God.
No other place to go, this is in fact financial repression or financial terrorism...
Actually however, in a depression physical cash and coin can be considerably valuable. Digits in a bank, not so much...
and M2 velocity will be there in a year or two.
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Id love to see who's shorting the dollar.
Vampire Squid.
About to become even moar crowded.
...and let's not forget the hedgies are record short gold, wheat and oil.
El Nino mild weather in the Midwest is boosting winter wheat yields, so short wheat has a fundamental going for it. In late January if it gets really, realy cold, the exposed wheat will get frostbitten. Still not much snow cover in the Midwest.
Bombs are more effective in a crowded space.
Machine guns are. Bomb blast is shielded by the victims with higher proximity.
A thermobaric bomb will do wonders
Look at all Those longs that still have yet to find Gold.
Time to smoke some fools.
Somewhere, somehow... Massive Chinese physical gold accumulation (has yet) to play its part in all this, but something tells me it isn't just for show, and their 'act' is soon to follow.
Isn't that just proof that any move is already priced in? Where's the upward pressure going to come from?
For some reason I think the FED is not going to hike today.
Imagine what that would do to the dollar longs?
We all think that because tomorrow is the day.
How exactly would a big renminbi devaluation hurt the USD? It would destroy EM currencies and AUD, SGD at the least.
Speculative Frenzy Will Exceed 1997; Spec Home Prices Must Plunge 60-80%; USDCNY Below 12Glad I live in Canada! Our dollar keeps going up and life is awesome la la la...oh...wait...nevermind the chart is upside down :(
It's a good thing America has the smartest magic negro in the room running things
What, me Worry?
The trend is your frend.
There is still room to the upside (new high). After people and businesses digest the fact that the buck is killing American based companies and their exports, we'll see some good old fashioned manipulation by the planners. I'm not a trained economist, but I do trade currency, and I always scratch my head and wonder what the planners have in mind as the entire world is not in a deflationary free-fall. We can not help but import that mess to our land.
Did Goldman mentioned 300 EASY PIPS in forex for USD...?!;)