May 14, 2011
The Comeback of the US Dollar?
The following graph of the US Dollar Index tells a story that can be summed up in the following terms. There seems to be change in sentiment regarding the way people perceive their positions relative to the US Dollar. This is all translating into a major change in the way Forex traders are positioning themselves regarding the future of the US Dollar.
Recent economic news on each side of the Atlantic have heavily influenced the strength of the American currency. In the US, it is clear that talks by the Federal Reserve to end of quantitative easing, QE2 on time, and that there probably is no QE3 in sight. Economic data on employment is improving and recent speeches by Fed's Chairman Ben Bernanke lead to think that the US economy is getting stronger.
Expect for the specific cases of Germany and France, economic data for Europe is coming in short of expectations and the continued Greek sovereign crisis is weighting on the Euro. As long as the market has no certainty as to what will happen with Greece's debt, forex investors will keep expecting the worse as time passes by and will fly back to the US Dollar.
Looking at the chart at the beginning of this post, there a long term reversal is in place for a comeback of the US Dollar that should last many weeks. Shorting the Euro and getting long on the US Dollar will prove to be a winning trade as long as a bond crisis still looms over Greece.