Great news right? Or is the entire rest of the world exporting deflation to America... and The Fed waving it in?
Think this oh-so-crowded trade has nearly run its course? Think again says Bloomberg's Richard Breslow, who notes that we're about to see what happens when DM monetary policy diverges:
- In the last 24 hours, I have read more analyses than I can count that it’s time to abandon the long dollar trade. I concede that opinions can differ and refer you to the top of the previous paragraph, but also assert that nothing has changed in the big picture
- The ECB is planning additional easing because what they’ve delivered so far hasn’t done the trick. Certainly not if you look at the youth unemployment rate in countries heading for elections soon. It’s a hopeful assumption that this time success is baked in the cake
- The Fed is tightening. Because it can. It’s hard to say the Fed move is priced in when the market is priced far more dovishly than the dot plots. There is little to suggest that the euro versus U.S. yield curves should converge, at any duration
- The Bloomberg Dollar Index made an all-time high Monday. Yesterday, Tuesday, it fell to levels not seen since Friday and it was described as a crash. This is somehow foretelling a EUR/USD move to 1.13 or even 1.20. The average price over the last year is 1.1217 and we’re headed to 1.20? There are far more countries poised to mirror the ECB than the Fed
- It’s admittedly a crowded trade. For good reason. I would argue that given the number of companies bemoaning the stronger dollar, it’s not nearly crowded enough.
Who needs foreign revenues anyway?
Charts: Bloomberg
