Wednesday, September 16, 2009

US carry trade

Art Cashin stated months ago that the US dollar carry trade was ruling the roost. I think he was 100% right. The key thing to watch will be the US dollar. As long as it is sinking at an orderly rate, everything else (commodities, credit, stocks, all other currencies) is going up. The world is long assets and short USD.

When it reverses (and I believe it will; a number of technical measures are moving toward a reversal, but not quite yet), this will crush these asset classes. I am watching the USD carefully. A move above RSI 55 may be the key (it is currently 31) and above its previous resistance around 78. First we may need a mini-crisis (perhaps a quick drop to the low 70s) in the near term to trigger the reversal.

Disclosure: Positions in USD, Euro, Cdn cash, positions in select SPY puts, JPM puts, IBM, CM.TO, BMO.TO, TCK-B.TO

1 comment:

Anonymous said...

Stupid question, probably, but is it the USD to watch or the Euro?

Just that there appears to be an inverse correlation between the EURUSD and US equities, gold, etc. I looked at JPYUSD and didn't see the same correlate, and the 'commodity currencies' like CAD, AUD, etc seem to rise & fall with commodity prices rather than what the USD is doing specifically.
While I agree that a spike in USD will likely coincide with a drop in equities would a EURO sell-off coincide with that or precede it?

Does that make sense?

Also, I'm convinced this 'dollar doomism' that seems to be popular these days is rooted more in ideology than reality. Do you think perhaps, without getting into tinfoil hat territory, that there's a deliberate ploy to force the Fed to raise interest rates prematurely?