23 November 2009

The US Dollar Is In a Secular Bear Market and Will Remain in One Until...

Contrarians might take some cheer from dollar bearishness, but one needs to be aware that not everything that is fundamental and recognizable is overdone and wrong.

Markets do overrun their trends, especially on the short term and by amateur speculators, setting up very nice opportunities for the professional market makers. The attractiveness of being a 'contrarian' is that when you are right you can set yourself up as superior to those who were wrong, distinguishing yourself from the mere mortals, and feel the euphoria of God's favored hand.

But being a contrarian requires a superior sense of what is real, and what is out of synch with reality. In general few amateurs possess this level of judgement and perspective, and end up just looking silly and eccentric after a few correct calls, taking the opposite position because it is the opposite, proclaiming night to be day, and the moon to be cheese.

Oh they deny it, and keep changing their forecasts, and burying their mistakes, fooling no one really but themselves, constructing ever more intricate theories about why they are right and will be ultimately vindicated in their 'beliefs.' But on the whole they lose money and take a terrific financial beating for being obstinately. Every seasoned trader learns this lesson, at least once, and bears its scars. They become superior traders when they are able to take a position again and hold it, despite the market head fakes, because they are right and they know it.

Markets do fluctuate. This is why it is so important to determine whether a move in a market is a purely 'technical move,' ie a bounce or dip to skin the overleveraged speculators who have piled on to a momentum move, and a genuine and sustainable change in direction underpinned by some fundamental reason.

And this news piece provides an important clue as to when a change in the dollar bear market may begin to occur.

“History tells us the dollar shouldn’t start rising on a sustained basis until 12 months after the Fed starts to lift rates.”
The rise in rates will be relative to other currencies and commodities in valuation, but the forecast here is substantially correct. The dollar is in a bear market and will remain there for the foreseeable future. Again, with bounces and dips to tempt the punters in to be fleeced and skinned.

Dollar Slump Persisting as Top Analysts See No Bottom
By Bo Nielsen

Nov. 23 (Bloomberg) -- The most accurate dollar forecasters predict the world’s reserve currency will continue sliding even when the Federal Reserve begins to raise interest rates, which policy makers say is an “extended period” away.

Standard Chartered Plc, Aletti Gestielle SGR, HSBC Holdings Plc and Scotia Capital Inc. say the dollar will depreciate as much as 6.4 percent versus the euro. About $12 trillion of fiscal and monetary stimulus, the world’s lowest borrowing costs and a record $4 trillion of government bond sales between 2009 and 2010 will weigh on the currency, they said. So will the nation’s 10.2 percent unemployment rate and signs that the economic recovery may falter, they said.

“History tells us the dollar shouldn’t start rising on a sustained basis until 12 months after the Fed starts to lift rates,” said Callum Henderson, the Singapore-based global head of foreign-exchange strategy for Standard Chartered.

The best forecaster of the dollar against the euro in the six quarters ended June 30 in Bloomberg’s ranking of 46 firms last month predicts the greenback will weaken 5.3 percent to $1.58 per euro in 2010, from $1.4970 today.

It’ll take time to drain the oversupply of dollars from the market,” Henderson said. “The dollar will remain weak until the Fed’s rates rise above the competitors’....”