All That Glitters...

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Comment by Steven Vincent on December 21, 2009 at 6:35pm

Yes, but there is likely to be more of a decline than you think. Parabolas generally give it all back which will mean a return to the 989.00 area, which also correlates with the 200 EMA as well as trendline support. Although a bounce should begin any time now, it will not likely be a move that will hold. And the dollar rally is not over either (though a rest or retracement is likely right about now).

Comment by enemyartist on December 16, 2009 at 3:59pm

Buy the Decline
buy the decline
Buy
the Decline!

Comment by enemyartist on December 9, 2009 at 4:36pm

What’s Propping Up the Strong Buck
Why Bernanke Is Supporting a Yen Carry Trade

Good day traders!

The dollar has been rallying for the last few days. But can it last? Have we seen the bottom of the dollar decline? A look at the forces behind this recent dollar strength can give us some insight.

The rally started last Friday right after the much better than expected unemployment numbers. Traders started to speculate that the Fed would raise rates much sooner than expected. So that was very bullish news for the dollar.

But as Chuck reported here yesterday, Ben Bernanke put those speculations to rest on Monday, when he once again reaffirmed that rates will remains low for an extended period of time.

So after Bernanke’s speech, I was expecting the dollar downtrend to resume. But the dollar is still rallying. What is driving the dollar now is risk aversion, as opposed to expectations of higher rates.

During Bernanke’s speech he emphasized that the economy is still weak, raising some concerns about the pace of recovery. The dollar rally picked up speed yesterday morning after credit-rating companies highlighted the risk of government deficits and German industrial production unexpectedly dropped.

A look at the Japanese yen confirms that the dollar is now moving on back of risk aversion flows. As you know the Japanese yen also tends to rise in value when market uncertainty rises. On the chart below, you can see that after the unemployment report, the dollar rallied and the yen fell.

Movements in the Yen Confirms that Risk Aversion is Now Driving the Dollar


The dollar rallied because traders were expecting higher rates, as I mentioned before. The Japanese yen fell for the same reason. Higher rates in the U.S. would make the Japanese currency once again the preferred funding currency for carry trades. After all, one of the main reasons behind the recent yen strength is the fact that rates are comparable between Japan and U.S.

After Bernanke’s speech, the Japanese yen appreciated because Bernanke’s message supported the dollar carry trade. The Japanese yen has also been benefiting from risk aversion flows, which is now keeping the dollar from falling.

That raises a more important question: Is this dollar rally for real? I’m not convinced yet. Since the dollar is being moved by sentiment, any flow of good news can trigger another leg down on the dollar.

Best Regards,
Evaldo Albuquerque

Evaldo Albuquerque is a Head Researcher for FX University Daily and World Currency Watch. A Brazil native, he specializes in pinpointing currency opportunities in the smaller emerging markets.

Comment by enemyartist on December 9, 2009 at 2:16pm

Seems as though Gold/Silver and the Stock Market are on the same path - and both paths are opposed to the paper dollar path. Makes sense that real commodities would ride the same wave. Unfortunately the paper money pushers and the "fed" are getting their way. Only for the time being, though, this is a christmas smoke screen to distract the masses. After the holidays and the smoke clears, we will get back on track!