Wednesday, November 25, 2009

Is the USD poised to rally?

As good market analysts know, when the public gets on board a story, chances are everyone is already in the trade and the trend is likely to reverse soon. So it is with interest that I got the following viral email entitled "What good is a Dollar?"

The answers: Make a penguin
A dragon:




You get the idea. With investor bearishness on the US Dollar at an extreme reading, who is left to sell?

The USD is the funding currency for a lot of carry trades (buy the high yielding currency and sell the low yielding currency). Should the greenback rally, it would mean a lot of hedge funds and currency desks would have to immediately de-risk and the ensuing sell-off as market participants rush to safety won't be pretty.

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