Expecting a Weaker Dollar This Week

by: Daniel Zurbrügg

The U.S. Dollar has been recovering against major currencies for a few weeks now and after gaining more than 5% vs. the Euro in December 2009 investors need to ask themselves whether this is the start of a longer-term recovery. Our readers who have been following our publications know that we have been quite bearish on the U.S. Dollar for a long time.

In our view the latest recovery is just confirming our longer term scenario and we do not expect the U.S. Dollar to get much stronger from here. The gains seen in December were in our view caused by year flows from institutional players, looking to sell foreign currency holdings before the year end. These trades were done in an otherwise relatively thin market. At the same time, the negative news about Greece and Spain as well as the uncertainty surrounding a couple of other European countries impacted the Euro negatively.

We believe that the first couple of days in the New Year will now see a "normal" market again with investors looking to diversify their currency holdings. Also the "buying" pressure coming from institutional investors should be pretty much gone. We continue to like foreign currencies like the Norwegian Crown, the Australian Dollar as well as Asian currencies and remain bearish for the U.S. Dollar. We do not see any factors which would speak for a longer-term recovery of the greenback. Therefore we would not be surprised to see a weaker U.S. Dollar again in the first couple of trading days in 2010.

Disclosure: No positions