For the better part of a decade, the dollar index has been falling. Not all the time, but enough so that "weak dollar" has been a near constant theme in all sorts of different investment strategies. Strategies that come unglued when the currency component misbehaves, or rises.
While headlines lately are focusing on the decline in the markets, you can be sure that for every 100 point slide on the Dow Jones Industrial Average, legions of leveraged "dollar shorts" are sweating gallons with every blip of strength in the greenback.
So with the dollar index bouncing hard off its recent low and gaining nearly 3% in a week amidst growing concerns about the U.S. and global economy, it might be tempting to say our currency has finally taken a turn for the better.
But you'd be wrong according to UBS Chief Technical Strategist Peter Lee, who says,"The real call is, do you think it is a sustainable rally?" He says "we've got a lot of problems. We could get some short-term technical bounce, but we (the dollar) are going lower."
As he sees it, the dollar index will likely bounce back to the high 70's range where it will begin its next downturn into the low 70's. And as much as it doesn't deserve it, the Euro will be the main benefactor if and until something major changes. "Germany is carrying the euro zone...if they back off and focus internally, we have big problems," says Lee.
So again, if you are a commodity player, and you are getting whacked this week in your crude oil position, do you give up on that trade? Lee says emphatically, "No...bulls clearly have been winning for the last 7 to 8 years (in commodities). We respect the dominant trend. The prevailing trend is still up which suggests this is a consolidation phase." He adds that if you believe the dollar is headed lower, commodities will go up. But he also says, if you don't believe in the emerging markets growth story you should not be in commodities, concluding, "It's macro call. If you believe there is growth in emerging markets."
Lee's analysis of treasuries is also worth noting. Right now most observers agree that the rally in U.S. treasuries that began in 1982, is looking a little tired after 29 years. Where his work differs is that he thinks when rates do ultimately start to rise in a year or two, they won't "explode upwards." Rather, we will see a sideways trading range of 2.5% to 3.75% on the U.S. 10-year notes, which he says "keeps rates a little lower, a little longer, surprising almost everyone on the street."
And that, my friends, is where fortunes are made and lost; when you're on the right side of something that almost everyone else isn't.
Is Peter Lee right? Is the dollar doomed long term?
Let us know what you think below, send an email to Breakoutcrew@yahoo.com or follow me on Twitter @MattNesto
All information on this website is for educational purposes only and is not intended to provide financial advise. Any statements about profits or income, expressed or implied, does not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed. You accept full responsibilities for your actions, trades, profit or loss, and agree to hold MinKL Invest harmless in any and all ways.
No comments:
Post a Comment