Alex Trias

Changing My Stance on the Dollar

Here's the thing about periods of risk aversion: it's candy for the government. The Treasury is selling Treasuries and buying unwanted corporate debt, and pocketing an almost historic spread. My hunch is that probably has been highly supportive of the dollar insofar as the dollar is basically stock in the US government which, at the moment, is poised to make a killing by arbitraging current risk aversion in the credit markets. Maybe it's no coincidence the dollar rallied back in the summer, when risk aversion in the credit market was hitting an all time high?

And another thing. The value of the dollar is relative to the value of other currencies. Supply has something to do with this. What I'm saying is that other governments get to do what the US government is doing, and make lots of money in the process. They're doing it, and will continue to do it. My guess is we'll see Euros and Yens flooding the marketplace too, along with torrents of dollars.

Fundamentals aside, the real issue is how easy it is to trade the buck against other currencies. At the moment, the dollar is poised at it's 200 day moving average. If this area acts as support, fantastic. The dollar will rally a bit in the short term and, maybe, the long term. If not, and the dollar slices through technical trading support, then that will be the shortest long term upward price trend the dollar's ever seen.