The demand for funding out of Europe and ongoing liquidation of yen crosses pushed the dollar sharply higher versus the European currencies last week.  While profit taking should be seen this week, the outlook for the currency remains strong. The risk to it is the equity markets, which have fallen sharply and should sink further, despite the no short-selling rule for financial stocks.
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With the US financial world topsy turvy and with its jewels up for sale at fire prices all eyes on Monday will be on the US Congress and its political games in ratifying the Treasury's Troubled Asset Relief Program (TARP). This is not the time for games and details are very important. The money market is broken and on this milieu, currencies took a back seat to other asset classes. The dollar is lacking much direction, but given the illiquid trading conditions and the ratification of the TARP, its bias is up.
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The dollar encountered unprecedented lack of liquidity last week (as only cable was affected in 1992/1993 and dollar/yen in 1998) as FX took a secondary position behind classic assets. The government didn’t save the day, but the year and probably the decade with an unprecedented operation to remove toxic assets from banks’ books and allow them to live and fight another day. There were other complex measures, but the bottom line is that we can re-start living our lives and FX will return to normality in early October. The dollar is facing divergent trading, probably strong against the yen and slightly weak versus the European currencies. Th
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Volatility increased last week amid waves of financial turmoil. The problems of Fannie Mae and Freddie Mac seem to be in a distant past, even though it’s been only days since they were bailed out by the government, as the world shifted its focus in the sinking fortunes of Lehman Brothers, Merrill Lynch and AIG. And other big names are being mentioned more and more frequently in the same vein. With commodities under pressure, the oil probed the psychological $100/barrel barrier despite tropical storms threatening the Gulf Coast oil business.  But the dollar rallied too much, too fast, and this week should see it on the losing side of the ga
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The dollar rallied big across the board and the surge started in a sneaky way during the Labor Day holiday. This upmove reflects mainly liquidation of long-term short dollar positions. The burst of the commodity bubble helped, but let’s not get carried away while a barrel of oil still costs more than $100. Only dollar/yen collapsed because of ongoing long liquidation of yen crosses, including carry trades. But mind you, only the dollar and the yen can rally while their economies suffer.  So, hold long dollar/Europe and dollar/antipodeans with ginger care. Just in case it wasn’t crystal clear before, the horrible US jobless data told us tha
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